'Deposit migration' fresh boost for A-share mkt

A structural shift is unfolding in China's financial system as households and institutions reallocate money from low-yield deposits into higher-return assets such as funds and equities.

Analysts estimate that insurance companies and wealth management products alone could channel as much as 700 billion yuan ($98.3 billion) of medium- to long-term funds into the A-share market in 2025, reinforcing their role as a stabilizing force in a market often dominated by short-term sentiment.

This phenomenon — known as "deposit migration" — is reshaping the foundations of equity market participation and is increasingly viewed as a central theme for China's next bull cycle.

Since 2019, Chinese household savings have risen sharply, with an acceleration from 2022 to mid-2023 that built up a massive cushion of "excess deposits". As of June 2025, household deposits in domestic currency exceeded 160 trillion yuan. Extrapolating from the linear trend observed between 2008 and 2018, household excess savings could reach 60 trillion yuan.

But deposit rates have fallen steadily. With many one-year time deposits now yielding less than 1 percent, savers are increasingly drawn to higher-yield alternatives. The result is a gradual reallocation of funds from bank deposits to investment vehicles such as mutual funds, wealth management products, and insurance-linked accounts — all of which feed into the A-share market.

Macro indicators corroborate the trend. Fiscal spending has accelerated, with fiscal deposits shifting into corporate accounts. A rebound in M1 money supply — a narrow measure of the money supply that includes currency, demand deposits, and other liquid deposits — and the narrowing of the "scissors gap" between M1 and M2, which includes M1 plus short-term time deposits in banks and money market funds, signal improved corporate cash positions, typically associated with greater economic activity.

Based on historical experience, the year-on-year gap between corporate and household deposits has a one-year leading predictive effect on A-share corporate earnings. In other words, improvements in household deposit growth are often reflected in corporate performance about a year later. With corporate deposit growth turning up in the third quarter of last year, analysts suggest that A-share listed companies' earnings may bottom out and rebound in the third quarter of 2025.

For years, analysts have tracked household deposit growth relative to nominal GDP as a proxy for savings behavior. Sharp declines in this measure, such as from the second quarter to the fourth quarter of 2021, often coincided with economic recovery, higher income expectations, and strong stock market rallies.

More recently, however, this measure has struggled to capture the nuances of today's market. While household deposit growth peaked in the first quarter of 2023, fell sharply before bottoming out in the second quarter of 2024, and rebounded slightly in the first half of this year, A-shares continued to slump following the first quarter of 2023 before going up after September 2024. This mismatch has led economists to search for more precise gauges of the impact of household portfolio shifts on the A-share market.

One candidate is the Aggregate Investor Allocation to Equities, or AIAE, which provides a more comprehensive reflection of shifts in investors' allocation between risk assets, such as equities, and safe-haven assets, such as bonds and cash. Unlike deposit growth, AIAE captures broad portfolio preferences.

According to our calculations, at the end of August last year, AIAE plunged to 14.18 percent, its lowest point since the beginning of 2019, before rebounding to 16.49 percent in September 2024. It has remained largely stable. Though improved, the current AIAE remains at a moderately low level, leaving ample room for equity allocations to rise. Strategists argue that AIAE better explains the current bull case for A-shares: with equity holdings still modest, "deposit migration "has significant scope to run.

Insurance companies are emerging as one of the most important sources of long-term equity capital. Premiums grew around 10 percent annually in 2023 and 2024, and in the first half of 2025 still expanded more than 5 percent year-on-year. This surge has fueled a rapid rise in the balance of funds utilized by Chinese insurance companies — from 19.4 trillion yuan at the end of Q1 2020 to 34.9 trillion yuan by the end of Q1 2025.

Yet insurers face an "asset shortage". With bond yields at historic lows and guaranteed-return products less attractive, they must look elsewhere for returns. While equity allocations remain in a narrow band of 12-13 percent of assets, the absolute size translates into steady inflows. If the balance of funds utilized by insurance companies rises 10 percent this year, they could channel more than 432.4 billion yuan into equities.

Regulators have supported this shift by approving long-term insurance investment funds. Since October 2023, three batches totaling 222 billion yuan have been cleared, targeting blue chips, long-cycle equity assets, and constituents of broad-based indices such as the CSI 300. Dedicated equity investment pools for insurance funds are gradually taking shape, further confirming that medium-to-long-term capital is accelerating its penetration into the equity market amid the trend of "deposits migration".

Bank-affiliated wealth management products are also playing a growing role. The balance of equity holdings within WMPs more than doubled from 218 billion yuan at the end of Q4 2020 to 446.4 billion yuan by the end of Q1 2025. The share remains small — just 1.94 percent of the combined assets under management of the top 14 wealth management subsidiaries of banks by the end of April — but is climbing steadily.

Reforms to the WMP industry have accelerated this trend. The shift to floating net asset value models has dismantled expectations of guaranteed returns, while falling deposit and bond yields have made equity allocations more attractive. Regulators have also loosened limits on equity exposure, creating room for expansion.

"Fixed-income plus" products — WMPs that hold at least 80 percent in fixed-income assets, including bonds, but supplement with equities for higher returns — have been especially popular. According to market tracker Wind Info, by mid-June, such products had grown to 13.92 trillion yuan, nearly half of the bank wealth management market. Their average yield of 3.29 percent in 2024 exceeded both deposits and pure fixed-income products, offering savers a compelling blend of safety and upside.

If WMP assets grow 15 percent this year and equity allocations rise to 2 percent, analysts estimate that about 125 billion yuan could flow into the market in 2025.

The influx of medium- and long-term capital is reshaping the market's structure. Dividend-paying assets like high-dividend blue chips, which offer stable cash returns around 4 percent, stand to benefit most. With insurance and wealth funds seeking predictable yields, these stocks provide a natural anchor in portfolios.

At the same time, active managers are channeling capital into high-growth sectors such as robotics, artificial intelligence, innovative drugs, and new consumer trends. These industries are marked by rapid innovation and uncertain outcomes, creating fertile ground for stock-picking. By identifying "hidden champions" outside major indices, active mutual funds can generate excess returns that index-tracking products may miss.

Retail investors, though quieter than in past rallies, remain a wild card. Data from the Shanghai Stock Exchange show that 1.96 million new accounts were opened in July — much lower than the third-highest number seen in October last year. For now, retail sentiment is moderate, but exchange-traded funds could offer an easy entry point if risk appetite revives.

China's "deposit migration" is also tied to deeper structural changes. Real estate, once the primary store of household wealth, has lost much of its appeal. With speculative purchases constrained and first-home buying delayed, households have turned to deposits as a temporary haven. Yet deposits are unlikely to remain a long-term solution. The erosion of the "property myth" and a sustained decline in interest rates are pushing households to diversify their portfolios.

In essence, "deposit migration" signals a broader rebalancing of China's financial system, with equities gaining ground as the next major destination for household wealth. This trend is set to elevate the role of insurance and wealth management funds. Once peripheral players, they are increasingly becoming the cornerstones of the A-share market's next phase of growth.

Xia Fanjie and Li Jiajun are investment strategists at CSC Financial Co Ltd. The article was translated based on the one published in Tsinghua Financial Review.

The views do not necessarily reflect those of China Daily.