Since 2014, China has gradually entered a low-interest rate era, transitioning from rapid economic growth to a focus on high-quality development amid a slowdown in growth ratesThis shift began accelerating particularly in 2023 due to two significant factors: the ongoing deleveraging in the real estate sector and the demographic turning pointAs a result, the downward trend in interest rates is expected to intensify in 2024.

By the end of July 2024, banks experienced a fresh round of interest rate cutsFollowing a reduction in the one-year Loan Prime Rate (LPR), the six major state-owned banks proactively lowered their deposit benchmark rates on July 25. This was soon mirrored by twelve other joint-stock banks nationwideThis chain reaction has led to a decrease in the interest rates of traditional financial productsNotably, some banks decreased their medium to long-term deposit rates, while several financial institutions halted the sale of large-denomination certificates of deposit and certain life insurance products that offered a fixed return of 3.00%.

The consequences of this low-interest rate environment on the capital markets are undeniable, manifesting in several key areas.

Firstly, with declining interest rates, the return on investments is directly affected

In such an environment, traditional fixed-income investments—such as bank deposits and bonds—are seeing significantly lower yieldsFor instance, the recent reduction in the LPR reduced one-year term deposit rates to around 1.75%, a figure vastly below what investors have enjoyed in previous yearsAs a reaction, investors seeking stable returns are compelled to seek out new avenues to preserve asset value.

Secondly, capital markets are adapting to this prevailing low-interest-rate environmentInvestors may increase their allocation to risk assets—like stocks and real estate—seeking higher returnsLower corporate financing costs can stimulate investments and expansion, which could drive stock markets higherHowever, this trend could also lead to asset bubbles and increased market volatilityA historical parallel can be drawn with the U.S., which experienced a prolonged bull market lasting nearly a decade following the 2008 financial crisis, driven by extended low interest rates.

Thirdly, the volatility of asset prices may heighten in a low-interest context

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The decrease in bond yields often spurs investors to flock to the stock market, inadvertently inflating stock valuations and creating potential bubblesThe real estate market may also see price increases because of low borrowing costsHowever, if rates were to rise again, these overvalued assets could face significant correctionJapan's experience highlights this, as its stock and real estate markets have seen multiple fluctuations during protracted low-rate periods, which posed challenges for investors' wealth management strategies.

Fourthly, financial institutions face severe challenges regarding their business models in a low-interest arenaThe narrowing net interest margins directly impact banks' profitability, pushing them to explore non-interest income sources, such as expanding investment banking and asset management servicesInsurance companies and asset management firms also need to reevaluate their investment strategies to ensure that they can maintain or grow their assets in this low-rate climate

Japan serves as an example here, where financial institutions increasingly pivoted towards overseas asset allocation and higher-risk investment ratios to chase better returns amid sustained low rates.

In light of these developments, how should investors manage their wealth in this low-interest era?

Firstly, a clear understanding of the importance of diversification within an investment portfolio is crucialIn a low-rate environment, traditional fixed-income investments often fail to meet the return expectations of investorsTherefore, they should construct diversified portfolios that enhance the overall potential for returns and spread riskSuch diversity can be achieved by allocating different assets, including stocks, bonds, commodities, and real estate.

According to data from Wind, since 2014, the yield on China’s 10-year government bonds has progressively declined, indicating a long-term falling interest trend

With this backdrop, it’s advisable for investors to consider increasing their stakes in risk assets like equities, corporate bonds, and convertible bonds to potentially achieve better returns.

Additionally, investors should pay attention to alternative investments such as private equity and Real Estate Investment Trusts (REITs), which often have lower correlation with traditional asset classes and can further diversify risk.

Furthermore, adopting a long-term perspective in asset allocation is vitalThis approach requires investors to evaluate their strategies with a longer horizon, focusing on the inherent value and growth possibilities of their assetsLong-term investment strategies emphasize the stability of cash flow—investments in high-dividend stocks or well-established infrastructure projects in mature markets can be particularly appealingMoreover, since inflation can erode purchasing power, it’s prudent to include assets that can hedge against inflation, such as gold and real estate.

Risk management and asset protection strategies take center stage

The importance of these strategies is magnified in a low-rate environmentInvestors must be vigilant about their portfolio’s risk exposure, employing measures such as setting stop-loss points, utilizing options for hedging, and consistently rebalancing their portfolios to maintain desired asset allocation ratiosLegal and tax planning strategies—like establishing trusts or undertaking estate planning—also play a role in asset protection to mitigate unnecessary loss.

Understanding the role of financial innovation in wealth management can provide an edgeInnovative financial products—such as structured products, robo-advisory services, and asset management tools utilizing big data and artificial intelligence—offer investors more options and convenienceStructured products can provide principal protection while also linking potential returns to market performance, appealing to those with a lower risk appetite

Robo-advisors utilize algorithms to offer personalized asset allocation advice, thereby lowering the traditional barrier to entry and costs associated with wealth management servicesMeanwhile, data-driven tools can enhance investors' capabilities to analyze market trends and identify investment opportunities, making decision-making more efficient and accurate.

Learners from the global experience can aid in navigating the challenges posed by low interest ratesIn developed economies, policymakers often respond to low rates with strategies like quantitative easing, negative interest rate policies, and proactive fiscal measuresJapan, for instance, adopted quantitative easing in its prolonged low-interest landscape, purchasing government bonds to boost money supply and stimulate economic growthThe European Central Bank has utilized negative interest rates to incentivize bank lending and corporate investments in the face of lackluster inflation and growth

While these measures have significantly influenced markets—leading to stock and bond price increases—they have also introduced risks of asset bubbles and rising debt levels.

In the low-interest era, investment behaviors in overseas markets have notably changedInvestors have shifted towards risk assets like stocks and high-yield bonds in search of greater returnsThe emphasis has also shifted towards the long-term growth potential and stability of cash flows, increasing interest in dividend-paying stocks and REITsMoreover, low rates have encouraged investors to consider global asset allocation to diversify risks and pursue higher yields.

International examples demonstrate that a low-interest environment necessitates adjustments in investment strategies for wealth management entities and individual investors alikeFor institutions, enhancing diversification in asset allocation, improving risk management capabilities, and developing financial products that align with low-rate contexts is essential

Individual investors should focus more on long-term investments, security of assets, and potentially augment their overseas market exposures for risk diversificationIncreasing financial literacy and investment skills remains an important path to tackling the challenges posed by low rates.

How can investors leverage the benefits of low interest rates for overseas expansion investments?

First and foremost, a realistic assessment of investment opportunities and risks in foreign markets is essential in a low interest settingInvestment prospects abroad are primarily characterized by several key points:

First, developed market places—such as the U.Sand Europe—are attractive to conservative investors due to their stable investment environments and mature legal frameworksThe U.Sstock market typically offers higher dividend yields under low-rate environments, particularly in sectors like technology and healthcare.

Second, emerging markets—like Southeast Asia and Latin America—show tremendous potential for economic growth but come with elevated political and economic risks

Investors need to familiarize themselves deeply with local markets, policy changes, and cultural nuances.

Third, the bond market offers stable income sources, especially high-rated bonds in low-interest contextsHowever, substantial variations in credit ratings and interest rates exist among different countries and regions, necessitating careful evaluations by investors.

Fourth, overseas real estate—especially commercial and residential properties in first-tier cities—often represent safe-haven assets in low-interest environmentsHowever, it’s vital to be aware of the significant differences in market cycles and regulatory landscapes across various countries when investing.

In cross-border investments, risks such as exchange rate fluctuations must be consideredThese fluctuations can substantially impact returns; therefore, employing currency hedging strategies is advisable

Additionally, economic policies and political stability need monitoring, as instability or shifts in policies can adversely affect overseas investmentsLegal and regulatory risks also vary greatly across countries, necessitating compliance and adaptability to legislative changesMarket liquidity risk is a prominent issue, particularly in emerging markets, where lower liquidity could hinder timely asset transactions.

Besides identifying markets, investors must emphasize strategy and risk management when undertaking cross-border investmentsThis requires a holistic approach encompassing asset allocation, market selection, and robust risk controlsSuggested strategies include:

Firstly, diversification is keyAllocating investments across different countries, regions, and asset classes can help mitigate risks associated with any single market or asset.

Secondly, localized strategies are beneficial