(Yicai Global) Sept. 21 -- Chinese authorities have cleared the way for banks to directly invest funds from wealth management products into the stock market,but the move may only give a limited fillip to China's gloomy A-shares as technical restrictions still hamper access, insiders told Yicai Global.

Commercial banks can now open accounts to invest WMP assets straight into the stock market, China Securities Depository and Clearingsaid in a revised version of the capital market trading account opening guidance on Aug. 19.Regulators previously barred banks from the practice, but their funds found ways to infiltrate A-shares, or stocks traded in the mainland, via other channels.

The guidance "does not change the investment scope of commercial bank WMPs and other asset management products," according to a notice issued yesterday by the CSDC,theShanghai and Shenzhen exchanges'joint venture that handlestheir depository and settlement operations.

The policy shift is expected to have little short-term impact on equities because domestic lenders have yet to set up teams to manage A-share investments. Team building, investment research, market-based compensation, customer risk appetite and other factors will constrain the direct investment of WMP assets in stocks, an asset manager from one bank told Yicai Global.

Risk Aversion

"Banks did invest the WMPs of high-net-worth customers indirectly in the A-share market," said a staffer with the asset management department of a corporate bank in central China. "High-net-worth customers, however, are not necessarily high-risk bearers, and ordinary customers may have an even lower risk appetite. It is still a question of how to educate investors and allocate the money."

Banks are unlikely to directly manage equity assets and have very little interest in this because of a lack of incentives and research support. With the recently lackluster A-share market, people generally believe that banks will still outsource WMP investments in short term, which means incremental funds from banks into the A-share market may remain small.

The rule change will create new business for banks, the insider said. "Though banks are unlikely to invest funds directly in the stock market short term, they may do so in the long haul after the new rules kick in," a private bank executive at a bank in central China added, saying "it may be seen as the bank's own public fund if it sets up its own team or affiliate in future."

The rates of bank WMPs are generally lower than those of public funds and banks boast the advantage of customer channels, so it would be possible for them to put the squeeze on public funds if they set up asset management affiliates and develop their own investment research teams in future, several public fund managers and researchers told Yicai Global.

Editor: Ben Armour