Hong Kong investors have withdrawn billions of dollars from equity funds since the start of the year as macroeconomic shocks in Europe, the US and China spread fear to Asia’s biggest financial centre.
New data from the Hong Kong Investment Funds Association, the regional trade body, showed that investors pulled $7.5bn from equity funds in the first nine months of the year — a sharp reversal after $7.1bn of inflows in 2015.
European equity funds accounted for a significant proportion of the outflows, with investors pulling $2.3bn from these funds in the six months to the end of September, the data showed. The HKIFA said the UK’s vote to leave the EU in June prompted these outflows.
China-focused equity funds also registered a fall in sales — down 83 per cent from last year’s net inflows of $10.7bn — following China’s unexpected currency devaluation and market turmoil that started in August last year.
By contrast, Hong Kong investors have poured into global bond funds, which have recorded $5.9bn of inflows since January compared with outflows last year, according to HKIFA.
Arthur Bacci, chairman of the association, said Donald Trump’s victory in the US election last month contributed to a rotation into fixed income funds.
“We continue to see investors actively managing their investments and shifting funds to more stable fixed income options in light of the US election and other market uncertainties,” he said.
“With the election resolved and predictions of increasing interest rates, we would expect investors to show increasing interest in equity funds.”
The figures from Hong Kong agree with global data, which show that outflows from equity funds around the world have topped $100bn this year. Both developed and emerging market-focused funds have suffered redemptions in a torrid year for equity managers, according to figures from EPFR Global, the research house.
83%
Fall in China-focused equity fund sales in 2016
Yu Zhang, portfolio manager at Matthews Asia, the $27.5bn fund house that specialises in Asian investment, said political news had gained international significance.
“At the beginning of the year you had the initial emerging-market scare and the global rout led by China, and just when markets began to recover, in June you had the infamous Brexit, and then the election [of Donald Trump] threw many people.
“People still don’t have a full risk appetite in terms of equity. For that to change, the global growth outlook needs to recover and corporate earnings need to show a more meaningful pick-up.”
Some investors are hoping that global growth will pick up if Mr Trump stimulates the US economy with tax cuts and fiscal spending.
“We assume that, from a global perspective, upside risks to growth from fiscal [changes will] offset downside risks from increased protectionism,” UBS analysts said last week. The Swiss bank predicted that the world could see nominal global growth for the first time in seven years in 2017.
Neil Flynn, data associate at Z-Ben, the Shanghai-based consultancy, added that flows into China-focused equity funds could also recover. He said: “For Greater China funds in Hong Kong, it has been a year of two halves. After the volatility at the start of the year, demand was weak and this continued into the summer.
“However, the third quarter has seen assets under management regain some ground. So far, this has mostly been driven by performance gains rather than organic inflows. But demand often lags behind performance.”
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