Open Source Securities: Deposits Migrating to the Non-Banking System, Significant Increase in Private Equity and FOFs

Kaiyuan Securities has released a research report stating that the low-interest-rate environment will continue in the first half of 2026, with a prosperous equity market, rising risk appetite among residents, and a trend of deposits migrating to the non-bank financial system. Specifically, public fund sizes have fully benefitted from market prosperity, with diversified products such as FOF (Fund of Funds) growing rapidly. The significant growth in private equity fund sizes validates the improved risk appetite among high-net-worth clients. Wealth management and premium income are experiencing stable growth, and low-volatility products are expected to benefit from the improved risk appetite of residents as they absorb resident deposits. Given the restoration of residents' risk appetite and the trend of deposits moving, wealth management is expected to welcome development opportunities, positively impacting brokerage firms' wealth management businesses, while insurance companies are likely to see sustained high-quality growth on the liability side. The valuation and institutional holdings in the non-bank sector remain historically low, making brokerage firms and insurance companies favorable for excessive returns in the second half of the year. Key points from Kaiyuan Securities are as follows: Residents' risk appetite has somewhat recovered, with deposits migrating to the non-bank financial system. (1) In the first half of 2026, the technology sector drove a general rise in the stock market, with the Science and Technology Innovation 50 Index up by 59% and the CSI 300 Index up by 8%. Fund performance was strong, with actively managed equity funds up by 26% and the bond fund index up by 2%. In the first half of 2026, the number of new A-share accounts reached 20.16 million, a notable year-on-year increase of 60%. (2) From January to June 2026, resident deposits increased by 7.6 trillion yuan, which is a decrease of 3.2 trillion compared to the same period in 2025. Non-bank deposits increased by 4.9 trillion yuan, an increase of 2.4 trillion compared to the same period in 2025. The growth rate of resident deposits is lower than the growth rate of M2, indicating an improvement in residents' risk appetite and a trend of deposits migrating to the non-bank financial system. The net value increase in the second quarter led to net redemptions from equity funds, while FOF saw significant net subscriptions and private equity scale grew substantially compared to the previous year. (1) Public funds: Non-monetary scale growth shows that net redemptions from stock ETFs have dragged down the growth of equity fund shares, while FOF experienced significant net subscriptions. By the end of June 2026, the non-monetary scale was 24.0 trillion yuan, up by 6% compared to the beginning of the year, with shares totaling 17.4 trillion, up by 3%, an increase of 0.4 trillion shares. The scale of equity funds (excluding money market and bond funds) was 11.9 trillion yuan, up by 2% from the beginning of the year, with a share count of 7.6 trillion, down by 0.28 trillion from the beginning of the year. The size of equity ETFs decreased to 2.6 trillion, down by 31% from the beginning of the year, with a share count of 1.9 trillion, a decrease of 0.33 trillion. Excluding equity ETFs, equity fund shares were 5.7 trillion, up by 1% from the beginning of the year, with the first quarter showing an increase of 6% and the second quarter showing a decrease of 5%. Fund investors exhibited strong counter-cyclical behavior regarding equity fund subscriptions and redemptions (with unit net value changes of -2% and +19% in the first and second quarters, respectively), leading to some net redemptions due to significant net value increases in the second quarter. Bond funds, FOFs, and QDIIs increased by 11%, 37%, and 9% compared to the beginning of the year, with their share counts up by 8%, 36%, and 8% respectively. FOFs grew by 80 billion compared to the beginning of the year and became an important force in absorbing deposits. (2) Private equity funds experienced significant growth, reaching a historical high. As of the end of June 2026, the total size of private equity funds stood at 23.7 trillion yuan, a year-on-year increase of 17%. Among them, private securities investment funds reached 8.0 trillion yuan, a year-on-year increase of 44%, growing by 1.0 trillion from the beginning of the year, or 13%, marking a historical high. In the first half of the year, the new filing scale for private equity funds was 587.2 billion yuan, with the new filing scale for private securities investment funds reaching 346.0 billion yuan, a year-on-year increase of 88%. Wealth management scale and premium income are steadily increasing, although the year-on-year growth rate has somewhat slowed down. (1) The growth rate of bank wealth management has slowed, while the scale of fixed-income products has grown steadily. By the end of June 2026, the outstanding scale of bank wealth management was 31.9 trillion yuan, up by 5% year-on-year, and basically unchanged from the beginning of the year, with the growth rate of outstanding scale slowing down (growing by 7% and 2% in the first halves of 2024 and 2025, respectively). Among them, cash products, fixed-income products, mixed products, and equity products had changes of -10%, +2%, +21%, and -9% respectively compared to the beginning of the year. (2) Premium income has increased year-on-year, although the growth rate has slightly slowed. From January to June 2026, the premium income of life insurance companies reached 2.9 trillion yuan, a year-on-year increase of 3.7%, slightly down from the 5% growth rate in the first half of 2025, mainly affected by base elevation and the deepening integration of bank- insurance product sales. Recommended target combinations include: GF SEC, CICCH, Huatai, China Pacific Insurance, China Life Insurance; Guotai Haitong, CITIC SEC, Ping An Insurance; Caitong, Hithink RoyalFlush Information Network; HKEX. Risk warnings include: policy uncertainty risks; risks of significant market fluctuations; continued macroeconomic downturn risks.