China's monetary easing is making higher-yield fixed-income assets more attractive to investors, according to a major Chinese investment bank.
The government's loose monetary policy has lowered the returns of riskless assets and made low-risk financial products with higher yield more appealing, China International Capital Corp. (CICC) said in a report on Monday.
The seven-day annualized yield of Yu'e Bao, a very liquid investment product offered by e-commerce giant Alibaba, dropped below 3 percent for the first time on Oct. 18, following days of continuing declines in returns on treasury bonds and personal wealth management products.
With 220 million retail investors and a fund of 617 billion yuan (97 billion U.S. dollars) in management, Yu'e Bao's yield is generally considered the market risk-free rate in China.
Lower returns of riskless assets will drive more retail investors to fixed-income assets with annualized yields of more than 4 percent, CICC predicted. Financial products such as asset-backed securities, higher-yield personal wealth management products, and high-dividend stocks may be among the most popular choices.
China has pushed monetary easing policies this year to prop up the economy. The People's Bank of China (PBOC) has lowered the interest rate four times and analysts still expect further cuts.
In its latest move to cut lending costs for small businesses, the PBOC also expanded the credit-asset pledged relending program, which allows local banks to use loans as collateral to borrow from the central bank.
As the monetary policy continues to loosen, the yield of Yu'e Bao may further drop to around 2.1 to 2.2 percent, CICC estimated.
