(Yicai) Aug. 25 -- The rally in Chinese mainland stocks is prompting some individuals to withdraw funds held in banks for reinvestment in equities, a trend that could grow but has so far only modestly affected bank deposits, according to an analyst.

A screenshot circulating on social media recently showed a jumbo certificate of deposit being offered for resale. The CD carried an interest rate of 3.85 percent a year, but because the seller was discounting the price the new owner could earn about 4.87 percent. By comparison, annual rates at banks on three-year CDs of at least CNY200,000 (USD27,910) are around 2 percent.

Redemptions of wealth management products are on the rise too. “We’ve lately noticed a clear trend of customers redeeming their wealth management products,” a WMP manager at one bank told Yicai. “The stock market is performing too well, so many clients want to try their luck there.”

Amid declining interest rates, investors had started shifting funds from CDs last year towards wealth management funds, according to Wang Jian, analyst at Guosen Securities. However, with the impressive performance of Chinese mainland stocks, investors’ risk appetite grew, and their funds began flowing into the capital market last month, he added.

“Capital naturally seeks higher returns,” said Wang Pengbo, chief financial industry analyst at Botong Analysis. “With the Chinese mainland market’s sustained gains, some depositors with high expectations are moving a portion of their funds from savings to stocks to chase higher yields.”

Chinese equities have performed strongly this year. The Shanghai Composite Index [SHA: 000001] climbed a further 1.5 percent today, led by rare earth and property developer stocks, to close at 3,883.56, a decade high. The Shenzhen Component Index [SHE: 390001] and the ChiNext Index [SHE: 390006] are at their highest in three years.

Lenders are now recommending products with a degree of equity exposure to retain clients with some risk appetite, the manager noted. Traditional savings depositors remain cautious, so the overall impact of this fund migration on bank deposits is limited, an expert told Yicai.

Based on data for new account openings, Soochow Securities analyst Cheng Gang deduces that a big retail fund influx has not yet happened, suggesting there is still scope for the stock market rally to run. But if these funds pour in at scale, the market could accelerate rapidly, even triggering a short-squeeze, which is often a sign that a boom is nearing its end, Cheng pointed out.

Editor: Futura Costaglione