Summary of Key Points
Since July, popular tech sectors in the A-share market such as AI and semiconductors have experienced significant declines, causing major indices like the Shanghai Composite Index and the ChiNext Index to plummet (with the ChiNext Index falling by over 21% within a month). This has led to a noticeable drawdown in the net values of equity-linked financial products (especially those with a "fixed income +" component)—some AI-themed products lost 12% in just one week, and many fixed income + products have shifted from providing additional returns to incurring losses. Several financial companies have responded, stating that this decline is not due to a deterioration in the domestic industry fundamentals but rather a result of short-term factors such as overseas policies, market sentiment, and leveraged funds. They advise investors not to panic and suggest holding high-quality products for the long term, while also pointing out opportunities for repositioning in the tech sector after the correction and the defensive value of dividend-paying stocks.
Detailed Analysis
1. Why Have Equity-Linked Financial Products Suddenly Become Less Attractive?
The direct reason for the net value decline in equity-linked financial products (such as fixed income + and equity-based ones) is the sharp drop in the stock market.
- Fixed income + products are not purely for earning interest: They use a portion of their funds (10%-30%) to invest in stocks or funds to boost returns. The significant fall in tech stocks in July resulted in losses from these investments, and coupled with a weak bond market, many fixed income + products have seen negative returns (with over 70 products having yields below -1% in the past month).
- Equity-based products were even more affected: For example, an AI computing power index product lost 12% in one week because the tech stocks it held heavily declined.
In simple terms, if your financial product includes stocks and those stocks fall, the net value of the product will also decline.
2. Does This Decline Indicate a Weakness in the Chinese Economy?
Financial companies unanimously agree that this is not due to fundamental issues but rather short-term factors such as market sentiment and external influences.
ICBC Financial Products identified three main reasons:
- South Korean leveraged funds selling aggressively: Koreans borrowed money to invest in tech stocks, and when prices dropped significantly, they were forced to liquidate their positions, triggering a chain reaction that led to foreign investors also selling A-share tech stocks.
- US quantitative funds selling off: These automated trading funds sold large amounts of popular tech stocks, affecting stocks around the world.
- A-share investors seeking to lock in profits: The AI sector had risen sharply earlier, and as companies were about to release their semi-annual reports, investors feared that performance might not meet expectations, leading to a rush to sell stocks and borrow money, exacerbating the decline.
Hangyin Financial Products added that domestic risk-free interest rates (such as those on government bonds) remain low, indicating that the medium to long-term value of stocks still exists. The underlying mechanisms of the A-share market are different from those of the US and South Korean markets, so a systemic collapse is unlikely.
3. Should You Redeem Your Financial Products Now or Continue Holding Them?
Financial companies generally recommend not panicking and holding on for the long term:
- Don't let short-term panic drive your decisions: Hangyin Financial Products noted that market bottoms are often accompanied by fear, and selling at such times may cause you to miss subsequent rebounds (for example, many products rebounded after the significant drop in April 2022).
- Diversify to mitigate fluctuations: ICBC Financial Products suggest adding low-volatility fixed income + products to your portfolio to balance out stock losses with bond returns.
- Consider the purpose of your funds: If you don't need the money for more than three years, give it more time; if you need it soon, you may need to adjust your portfolio, but avoid selling during a sharp decline.
Zhaoyin Financial Products also provided a practical tip: Ask yourself three questions:
- Are you investing in a single product or a diversified strategy?
- Is your holding period one year or just one month?
- Are you selling because of price drops or because the product's fundamentals have changed? If the fundamentals remain unchanged (e.g., the product still invests in high-quality tech companies), don't sell.
4. What Opportunities Exist in the Future Market?
Financial companies highlighted two areas of potential interest:
- Opportunities for Repositioning in the Tech Sector After the Correction: ICBC Financial Products suggest that the focus will shift from broad market gains to selecting individual stocks with solid orders, profitability, and strong domestic substitution capabilities (such as semiconductor equipment and AI chips). Nongyin Financial Products also believe that the tech sector offers better value after a short-term correction.
- Defensive Value of Dividend-Paying Stocks: Many companies in sectors like banking, energy, and utilities have high dividend yields, providing stability during market fluctuations, making them suitable for investors seeking more stable returns.
In other words, you can gradually buy into tech stocks after they have declined, or opt for dividend-paying stocks if you prefer a more stable investment strategy.
5. How to Avoid Similar Situations in the Future?
The key is to understand the risks associated with financial products and match them to your risk tolerance:
- Don't assume that "fixed income +" products are always safe: They carry higher risks than pure bond investments and can lose value during market downturns. Read the product prospectus carefully to understand the proportion of equity investments.
- Diversify your portfolio: Don't put all your money into tech-themed products; include some pure bonds, money market funds, or products from different industries to reduce the impact of sectoral declines.
- Invest with long-term funds: Only use money you won't need for at least three years to withstand market fluctuations; avoid investing in equity-linked products if you need the money soon.
In Summary
This recent drawdown in financial products is due to short-term market volatility, not a fundamental problem with the economy. If you don't need the money immediately, don't sell. If you want to invest, consider buying into tech stocks after they have corrected or opt for dividend-paying stocks for more stability. Remember: Financial products are not equivalent to deposits; fluctuations are normal. The important thing is to choose the right products and hold on for the long term.