(Yicai) May 21 -- The size of China’s wealth management product sector has continued to increase this month after achieving a new record in April, as funds kept flowing into WMPs from deposits on expectations of deposit interest rate cuts.

China’s WMP market returned to a historical high of CNY31.1 trillion (USD4.31 trillion) at the end of April and continued to expand this month, reaching CNY31.28 trillion on May 20, according to data from Pystandard. The market’s size has increased by CNY1.6 trillion (USD221.8 billion) so far this year.

The pace at which WMPs are replacing deposits has quickened in the past two months, a wealth management expert told Yicai, adding that most substitutions happened for short-term products.

In mid-May, WMPs with maturities of one month or under totaled CNY5.85 trillion, accounting for nearly 19 percent of the total and achieving the fastest growth among all types, increasing by over CNY800 billion (USD111 billion) since the beginning of the year, Pystandard data also showed.

WMPs with maturities of between one month and one year had a total scale of CNY9.09 trillion, accounting for 29 percent of the total, according to Pystandard. Meanwhile, daily open-end WMPs and those with maturities of over one year reached CNY11.28 trillion and CNY4.95 trillion, making up 36 percent and 16 percent of the total, respectively.

Cash management and bond products were the most sought-after before, but with the warming of the stock market, ‘fixed-income plus’ strategies that include small amounts of shares are gaining popularity, a staffer from a Chinese lender’s personal banking business told Yicai. Many financial institutions have put forward strategies with a mix of WMPs and Hong Kong shares.

“Some elderly clients still firmly choose deposit products, but some customers who previously invested in cash management-type WMPs now prefer ‘fixed-income plus equity’ strategies,” the head of a Chinese joint-stock bank’s personal finance department told Yicai. “This is because the Chinese mainland and Hong Kong stock markets have performed steadily this year, and market interest rates are declining.”

The People’s Bank of China yesterday cut the one-year loan prime rate, a reference rate for consumer and corporate loans, to 3 percent from 3.1 percent. The central bank also trimmed the five-year LPR, a reference for mortgages, to 3.5 percent from 3.6 percent.

As a result, China’s largest state-owned banks lowered their deposit interest rates for the first time this year. They reduced the one-year deposit rate to 0.95 percent from 1.1 percent and the two-year rate to 1.05 percent from 1.2 percent. The three- and five-year rates were dropped by 25 basis points each to 1.25 percent and 1.3 percent, respectively.

China may lower interest rates by another 10 to 20 bps, which would also benefit the bond market, Liu Xin, chief fixed income investment officer at BlackRock, told Yicai last week.

With the easing pressure on the Chinese yuan exchange rate, the PBOC may cut interest rates again in the second half of the year, Liu Jie, head of China macro strategy at Standard Chartered Bank, recently told Yicai.

Editor: Futura Costaglione