A flood of dodgy retail wealth management products sold to Chinese investors are about to come due.
Also at the SRI conference: Picked up a report from MSCI ESG about the vast flood of unregulated wealth management products (WMPs) in China that could be ready to meltdown.
Since the recession of 2008 the Chinese retail investor market has been flooded with an amazing amount of off-balance sheet securitized cash flows. The investment products, typically with a guaranteed return, have been sold in the unregulated "shadow" banking market by local governments and corporate borrowers in industries already at capacity or over-leveraged. The debt instruments have been sold to vast numbers of Chinese retail investors.
“As most of the WMP liabilities are opaque and linked to projects with non-transparent return potential, the WMPs sold to retail clients are embedded with significant product default risks,” says the report.
According to the ESG report the peak in sales of these intruments occured through 2012 and 2013. Most have maturity dates of a year or so, and many will come due in 2014. One of these issues related to China Construction Bank has already blown up. The report suggests this could be the tip of the iceberg.
Since the recession of 2008 the Chinese retail investor market has been flooded with an amazing amount of off-balance sheet securitized cash flows. The investment products, typically with a guaranteed return, have been sold in the unregulated "shadow" banking market by local governments and corporate borrowers in industries already at capacity or over-leveraged. The debt instruments have been sold to vast numbers of Chinese retail investors.
“As most of the WMP liabilities are opaque and linked to projects with non-transparent return potential, the WMPs sold to retail clients are embedded with significant product default risks,” says the report.
According to the ESG report the peak in sales of these intruments occured through 2012 and 2013. Most have maturity dates of a year or so, and many will come due in 2014. One of these issues related to China Construction Bank has already blown up. The report suggests this could be the tip of the iceberg.
