(Yicai) July 22 -- Several Chinese wealth managers have wound up US dollar-denominated products early after the investments hit their profit targets, a shift industry insiders attribute to falling yields and a narrowing China-US interest rate spread that has turned what was once “easy money” into “high‑risk gambles.”

China Merchants Bank Wealth Management has closed one of its US Dollar Qualified Domestic Institutional Investor products, which mainly invested in fixed-income assets, such as bank deposits, certificates of deposit, and US Treasury bonds. Rated PR2, or medium-to-low risk, it had an annualized profit target of 4.2 percent. Due to mature in December next year, it was liquidated just seven months after launch.

“In most product prospectuses there are preset conditions,” a banking industry analyst in South China pointed out. “Once met, they automatically trigger early profit‑taking.”

Faced with potential interest rate cuts in the United States, Chinese wealth managers are using early profit‑taking on longer‑term dollar products to mitigate risk and safeguard investor returns, the analyst added.

A significant spread between Chinese and US interest rates over the past two years has made dollar products a key focus for wealth managers, continuously attracting fresh capital inflows. More than CNY50 billion (USD7 billion) was invested in US dollar WMPs as of July 17, according to data from asset management services provider Puyi Standard. 

But due to falling yields, their average annualized monthly return was 3.96 percent at the end of last month, down nearly 70 basis points from a year earlier.

Though the China-US rate spread remains, the arbitrage window has narrowed and any further dollar depreciation would erode actual returns through exchange rate losses. The US Dollar Index, a measure of the greenback's value relative to a basket of other currencies, sank more than 11 percent in the first six months of this year, its worst first half in over 50 years.

Several wealth managers told Yicai that the dollar product market may have reached a turning point. One such manager in South China said that as markets increasingly expect the US Federal Reserve to end its rate‑hike cycle, his firm has begun scaling back its dollar product offerings, adding that some clients have also begun to redeem their dollar products in bulk.

Editor: Martin Kadiev