Stock Frenzy Leads to Surge in Large CD Redemptions

The previously highly sought-after large-denomination certificates of deposit have cooled down, with some even being sold at a discount.

Recently, many bank apps have seen a surge in the transfer of large-denomination certificates of deposit, with some being transferred at a loss.

Industry insiders believe that this is related to the high investment sentiment in the stock market around the National Day holiday. The Shanghai Composite Index rose from the lowest 2689.70 points in the second half of this year to the highest 3674.40 points since 2022 in just 10 trading days. The introduction of favorable policies for the active capital market has boosted investor confidence, and some funds have flowed into the stock market after the redemption of large-denomination deposits.

However, the stock market has recently undergone adjustments. So, will deposit funds continue to chase the stock market? Will the situation of deposit regularization that has troubled banks in recent years change?

Large-denomination certificates of deposit are being transferred at a loss.

With the continuous reduction of deposit interest rates, large-denomination certificates of deposit with relatively high interest rates once became the "hot cake" in the investment market, and it was difficult to find one.

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However, the situation has recently reversed. According to the monitoring by the Rong360 Digital Technology Research Institute, the A-share market has continued to rise under the promotion of policy benefits, and investor enthusiasm has increased. Recently, the number of transfers of large-denomination certificates of deposit has surged, and there are signs of large redemptions of some deposits and financial products that are not subject to term constraints.

The reporter noticed that not only have many bank apps densely appeared in the transfer of large-denomination certificates of deposit, but some of the transferred large-denomination certificates of deposit are about to mature. Taking the situation displayed on the Bank of China (601988.SH) app as an example, there are large-denomination certificates of deposit with a maturity of half a year that will mature in another 11 days and 35 days, which are also in a hurry to transfer.

At the same time, in this concentrated transfer of large-denomination certificates of deposit, there have been many cases of loss-making transfers. Taking the situation announced by China Merchants Bank (600036.SH) as an example, the bank's current 1-month large-denomination certificate of deposit interest rate is an annual interest rate of 1.6%, and there are certificates of deposit being transferred in the transfer area at an annual interest rate of 1.7%; the 6-month large-denomination certificate of deposit interest rate is an annual interest rate of 1.8%, and there are certificates of deposit being transferred in the transfer area at an annual interest rate of 1.93%.

It's not just large-denomination certificates of deposit. The person in charge of a grassroots bank outlet told the reporter that in the past two days, there have been many cases of redemption of large-denomination deposits among the customers he is responsible for, and the funds have entered the stock market through bank-broker transfers. "I can monitor bank-broker transfer transactions of more than 100,000 yuan. The number of such bank-broker transfers in recent months has been relatively small, but recently it has been particularly concentrated."On October 8th, the net value of bank-to-broker transfer funds for Industrial and Commercial Bank of China (601398.SH) soared to 54.88. This figure reflects the net amount of funds transferred by all investors of ICBC into the securities market on a trading day. A positive net value indicates an inflow of investor funds into the capital market, and the larger the number, the greater the amount of liquid funds. From May to August 2024, this value was consistently negative. From September 24th to September 30th, the bank-to-broker transfer index was 2.15, 1.40, 4.40, 7.04, and 16.71, respectively.

In addition, the person in charge of the grassroots outlets of the aforementioned bank revealed to the reporter that recently, many investors have come to the outlets to increase the limit on their bank cards. He explained that when there are unusual changes in the funds in the bank card, infrequent account usage (such as dormant accounts), or suspected illegal activities, the bank card may be limited, requiring an increase in the limit at the outlet.

Is the "moving of deposits" sustainable?

On one side, deposit interest rates continue to decline, while on the other side, the stock market is booming. Will the situation of moving deposits form a trend?

Yang Haiping, a researcher at the Securities and Futures Research Institute of Central University of Finance and Economics, believes that whether the behavior of residents transferring deposits from savings accounts to stock fund accounts will ferment on a larger scale mainly depends on how the subsequent market evolves.

Yang Delong, Chief Economist and Fund Manager of Qianhai Kaiyuan Fund, pointed out that looking at the factors driving this round of bull market, it is mainly the introduction of several major policies. "Subsequently, the regulatory authorities will introduce a package of incremental policies. As policies continue to be implemented, market confidence is already relatively strong. Therefore, after completing the first wave of adjustment, the market should usher in a second wave of upward opportunities. The underlying logic of this round of market has not changed."

On October 10th, the People's Bank of China issued a notice stating that in order to implement the requirements of the third plenary session of the 20th Central Committee of the Communist Party of China on "establishing a long-term mechanism to enhance the inherent stability of the capital market" and to promote the healthy and stable development of the capital market, the People's Bank of China decided to create a "Securities, Fund, and Insurance Company Swap Facility" to support qualified securities, fund, and insurance companies to swap high-grade liquidity assets such as bonds, stock ETFs, and Shanghai-Shenzhen 300 constituent stocks for government bonds and People's Bank of China bills. The initial operation scale is 500 billion yuan, and the operation scale can be further expanded according to the situation. This will provide the capital market with tens of billions of incremental funds.

Prior to this, on September 26th, the Political Bureau of the CPC Central Committee held a meeting, further emphasizing the capital market and proposing to "vigorously guide medium and long-term funds into the market and unblock the obstacles for social security, insurance, and financial funds to enter the market."

On September 24th, at the press conference of the State Council Information Office, Wu Qing, Chairman of the China Securities Regulatory Commission, also stated: "The CSRC, together with relevant departments, has formulated the 'Guiding Opinions on Promoting Medium and Long-term Funds into the Market', to improve the institutional environment for 'long money and long investment', focusing on improving regulatory tolerance for equity investment by medium and long-term funds, and fully implementing a long-term assessment cycle of more than 3 years."

Yang Delong believes that after this round of A-share market rises to a certain extent, the market will enter a stage of fluctuating upward, that is, upward with adjustments, but the overall trend is still upward. The market has confirmed the reversal trend, which is very important.Additionally, Yang Delong analyzed that the transfer of residents' savings to the stock market will have a promoting effect on the stock market. "During the bull market in the real estate market, residents' savings flowed to real estate in large amounts, and almost every economic cycle experienced a round of housing price increases, followed by regulation. The current situation is different, as the real estate market has shown a trend of decline, and people's expectations have changed accordingly. Under these circumstances, the stock market has become a suitable place to absorb the large transfer of residents' savings. The potential for the transfer of residents' savings is huge. In the past four years, residents' deposits have increased by 60 trillion yuan, and the current residents' deposits have reached more than 140 trillion yuan. Even if only 10% is transferred, it is also a fund of several trillion yuan, which will have a very significant pulling effect on the A-share market."

Zhou Maohua, a macro researcher in the financial market department of China Everbright Bank (601818.SH), warned that the recent warming of domestic market sentiment and the money-making effect have driven a lot of funds to be eager to try and rush into the market. However, it is necessary to remain vigilant about market risks, mainly because the equity market has relatively large fluctuations, which have higher requirements for investors' risk-bearing ability and market operation experience. Investors must be cautious when entering the market. "There are bull markets of all sizes every year, but many investors suffer losses in fluctuations. Investors need to invest rationally, diversify their portfolios, obtain expected and as high as possible returns, avoid chasing rises and killing falls, and speculative speculation."

"For residents to transfer funds from deposits to the stock market, it is still recommended to invest rationally, not to add leverage, not to blindly chase stocks that have been hyped, and to build an investment portfolio based on their own risk-bearing ability and adhere to diversified investment. No one can answer how long the A-share market can continue to rise. It is recommended that macro-control departments prepare policies and reform measures to turn the crazy bull into a slow bull and escort the slow bull market. According to historical experience, a slow bull market may last longer." Yang Haiping said.

Yang Delong suggested that when the market adjusts, it is necessary to maintain a rational and stable mindset, focus on the medium and long term, be patient, and exchange time for space.

"From a long-term perspective, China's super-large economic volume and huge market potential, the economy is long-term optimistic, whether it is to serve the real economy or residents and even global fund wealth allocation management, China's stock market has huge development space. However, countless experiences tell us that fluctuations in the capital market are the norm, especially the fluctuations in the equity market are relatively larger, which requires high comprehensive ability from investors. Ordinary investors need to maintain enough awe for fluctuation risks, effectively diversify and manage risks, and obtain expected and sustainable returns." Zhou Maohua suggested, "China's financial market is continuously developing, and residents have more investment options for financial management. In addition to products such as deposits and bonds, there are also a rich system of wealth management products and insurance products. With the continuous release of macro policy effects, consumer confidence is improved, real estate is gradually stabilized, the economy recovers, and corporate profits are improved. The financial market sentiment warms up, and investors will diversify asset allocation."

The trend of deposit termization has not been reversed yet.

When talking about the impact of this round of deposit "moving house" on banks, Yang Haiping said that the behavior of residents transferring deposits from savings accounts to stock fund accounts has a certain impact on commercial banks, but the extent of the impact depends on whether the bank has the qualification to open third-party custody accounts and the number of third-party custody accounts opened. "From the perspective of the influx of foreign and domestic incremental funds, the possibility of the introduction of incremental policies, and the firmness of the high-level intention to activate the stock market, the bull market will continue for a period of time. Commercial banks need to prepare from the perspective of liquidity management according to their own situation."

Yang Haiping analyzed that from the current situation, it is difficult for residents to change the trend of deposit termization by transferring deposits from savings accounts to stock fund accounts. "According to observations, the main force of term deposits is often risk-averse people. Even if they consider investing in the stock market, they will choose to only invest a part of their funds in the stock market, and their main funds will still exist in the form of term deposits."

Ai Yawen, a senior analyst at Rong360 Digital Technology Research Institute, believes that the trend of deposit termization still exists, mainly due to the impact of interest rate declines. In the uncertain market investment environment, investors also prefer to be more stable and conservative, and invest more in deposits and other lower-risk investments. "Under the trend of deposit termization, due to the adjustment of incremental and stock mortgages, the pressure of narrowing interest spreads is high, and banks themselves also face challenges to profitability. Banks may need to seek additional profit points to alleviate pressure by reducing costs, adjusting strategies and product strategies, etc."

"The change in residents' asset allocation and the warming of market risk preferences may lead to some bank deposits moving to wealth management, equity and other assets, which may cause a few banks to face pressure on liabilities. However, overall, domestic macro policies are positive, and the People's Bank of China cares for funds, and the overall pressure on bank liabilities is controllable." Zhou Maohua said.