DBS Bank in Hong Kong. (Photo/Xinhua)
Structured products issued by foreign banks, formerly shunned by burned Chinese investors, are making a comeback.
Chinese business media data reveal among wealth management products issued by foreign banks in 2011, those offered by Singapore's DBS Bank boast the highest average expected yield, just above 16%. Since the beginning of 2011, DBS introduced more than 50 wealth-management products, including some 30 products with an expected yield above 10% and 13 exceeding 20%.
The yield rate of a DBS wealth management product which matured in February generated zero yield, compared with an expected maximum yield of 37.5%. Two structured products, which matured last November, also generated zero yield, compared with an originally projected maximum yield of 14%.
Several other foreign banks also successively rolled out wealth management products, albiet on a more modest scale. Hong Hong's Hang Seng Bank launched a partial principal protection product in March, with an expected yield of 11% while Citibank brought out a product with an anticipated 10% yield.
The Guangzhou-based Time Weekly points out that Chinese banks are comparatively cautious in offering wealth management products. Few issued by the four major state banks advertise projected yield rates above 6%. The Bank of China is the champion among Chinese banks in issuing wealth management products but among those issued since 2011, the average predicted yield rate has not exceeded 8%.
Liu Qing, a commentator on Asian banking, notes that "compared with foreign banks, Chinese banks enjoy strong sales volumes and clients and can often achieve solid returns even for products with a low expected yield. Usually, they can achieve good sales for wealth management products whose expected yield is 50% greater than deposit rates. Moreover, regulators more closely supervise the marketing of wealth management products offered by Chinese banks."
The design of trust and wealth management products usually contains a stop-loss mechanism, setting, for instance, the alert or stop-loss line at 80% of a holding's book value. Liu, however, points out that wealth product managers must possess tools for bearish operation to cope with market decline, rather than waiting for the decline to reach the stop-loss line passively.
Consumers have the right to understand the composition of wealth management products, says Liu. Legally, issuers of wealth management products must fully disclose related information, especially a product's risk profile. Presently, however, promotional material for wealth management products contain only information which the issuers want investors to know. For the information they prefer clients didn't know, they attempt to confuse potential investors with financial jargon or simply gloss over important information.
Liu remarks that "usually, high-yield products entail high risk. Generally speaking, wealth management products with a projected yield exceeding 10% are not suited to conservative investors."