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Lower returns likely: Citibank

By Wang Xinyuan (Global Times)

08:15, July 06, 2012

Investment in wealth management products is expected to generate lower returns as market rates are likely to fall following further cuts in the benchmark interest rate and the reserve requirement ratio, Citibank said at a media briefing Thursday.

"The general annualized return on wealth management products will decline to below 4.5 percent after July from 4.8 to 5.2 percent (currently) and 5 to 5.5 percent (last year)," said Oliver Chiu, head of research & investment advisory with the wealth management unit of Citibank China, at the briefing.

Many depositors have invested in wealth management products rather than putting money into savings accounts, as such products yield annual returns that are well above the benchmark one-year deposit rate, which is now at 3 percent after China's central bank announced Thursday its second cut in the rate this year.

The central bank had previously cut the benchmark interest rate by a quarter percentage point on June 8, the first cut since 2008, to curb the risk of an economic downturn.

Chiu said he expected more cuts in the benchmark interest rate and in the reserve requirement ratio (RRR), the amount of cash that banks must hold in reserve.

The central bank has cut the RRR by 50 basis points three times since November 2011, when it had reached a record high. The RRR is now 20 percent for large banks.

Money market rates will be lower with the increasing liquidity, and the return on wealth management products, which are often based on money market rates, will fall, he said.

The stock market has been sluggish for the first half of the year, but is likely to surge by as much as 20 percent in the remaining months of this year as investors will regain confidence in China's economic growth, Chiu told the Global Times.

He estimated that China's GDP growth bottomed out by hitting 7.2 percent in the second quarter - down from 8.1 percent in the first quarter - although this projection is lower than market expectations of 7.8 percent for the second quarter.

But economic growth will edge up in the third and fourth quarters, Chiu said, to whole-year growth of 7.8 percent. Official data for second-quarter GDP will not be released until next week.

The consumer price index, a main gauge of inflation, is estimated to have risen 2.1 percent from a year earlier in June, down from the 3 percent growth recorded in May, which leaves additional room for easing monetary policy, Chiu noted.

"There is not much risk in investing in the A-share market now, as it is at a low level," Chiu also noted.

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