Wealth management experts said investors prefer holding bonds and savings amid a financial turmoil and interest rate cuts.

On Wednesday, the central bank reduced both lending and deposits rates while the State Council, the country's Cabinet, scraped the 5-percent interest gain tax.

It's the second time for the central bank to announce interest rate cuts within one month, signaling a policy turnaround that may see more rate cuts. Individual investors can then adjust their investments to maximize their returns, said wealth management experts.

Savings

Despite the rate cut, the move translates into a de facto saving rate increase for deposits and savings of more than three years taking into account the tax incentive, said Qiu Zhicheng, a Haitong Securities Co analyst.

The central bank has kept the current account deposit rate unchanged at 0.72 percent, but with the scrapping of the tax, the actual rate actually inches up by 0.07 percentage points.

"Savings are still a sensible choice amid the current sluggish stock market," said the Lilin Wealth Management workshop run by the Shanghai branch of the Agricultural Bank of China.

Amid the current market conditions, several banking wealth management products are showing zero returns while the stock market has been see-sawing since last October. Bank savings are naturally the first choice for conservative investors.

Individuals may also take a "four-stage" savings strategy to hedge against interest income loss once rates are cut.

For instance, individuals can break their large deposits into three-month, six-month, one-year and two-year terms to maximize interest income and still be fairly liquid.

ABC also suggested placing deposits on a monthly basis to hedge against a deposit rate cut.

Bonds

Bonds and related products like bonds funds are gaining attention during a cycle of rate cuts as the returns from bonds are set against interest rates. Treasury bonds are a stable and popular product.

Meanwhile, the Shanghai Stock Exchange has also scrapped trading fees for bond transactions to encourage bond trading. China's bonds market is underdeveloped compared to its stock market.

Mortgages

The rate cut is good news for mortgage owners.

Fixed rate individual mortgages have gained popularity during the past cycle of raising interest rate.

The central bank has hiked the interest rates six times in 2007, leaving owners of mortgages facing increased interest pressure while it boosted fixed rate mortgages.

(Shanghai Daily October 10, 2008)