(Yicai) April 16 -- The funds that Chinese households did not deposit with banks in the first quarter did not flow into wealth management products as they used to, with that market actually shrinking, reflecting seasonal bank funding pressures, low yields, and market volatility.

Household deposits at banks increased by CNY7.68 trillion (USD1.13 trillion) in the three months ended March 31, CNY154 billion less than a year earlier, according to the People’s Bank of China. Meanwhile, deposits at non-bank financial institutions rose by CNY2.03 trillion, up CNY1.72 trillion from a year ago.

The figures indicate a reallocation of household funds, though not toward wealth management products, as is usually the case.

China’s wealth management market was worth CNY32 trillion (USD4.69 trillion) at the end of last month, down CNY1.3 trillion from both the end of February and a year earlier, according to estimates by Huayuan Securities.

“At the end of the first quarter, banks faced considerable pressure from deposit assessments, resulting in wealth management funds flowing back to parent banks to boost deposits,” said Ming Ming, chief economist at Citic Securities. He added that other factors, such as fund diversion, also weighed on the overall scale.

The wealth management market is likely to remain under pressure in the near term, as persistently low interest rates and rising equity-market volatility continue to weigh on returns and constrain asset growth.

“On the one hand, interest rates remain low, leaving limited room for improvement in asset-side returns,” a source at one wealth manager told Yicai. “On the other hand, the volatility of the equity market has increased, and the uncertainty of equity-linked products still exists.

“In addition, institutional factors such as the quarter-end assessment mechanism may still cause short-term disturbances,” the person said.

The average annualised yield on wealth management products has slumped this year to 2.26 percent in March, down from 2.96 percent in February and 3.72 percent in January, according to data from financial platform PY Standard. Analysts said the low-interest-rate environment has squeezed returns on traditional fixed-income assets, while heightened market volatility has triggered net asset value drawdowns, particularly during the broad global selloff in March.

Several industry insiders said the more important signal is that household asset allocation behavior is changing. Wealth management products are no longer the primary destination for funds, and their share in household assets may be entering a period of adjustment.

Editor: Emmi Laine