Careful investment

PUBLISHED : Sunday, 26 November, 1995, 12:00am
UPDATED : Sunday, 26 November, 1995, 12:00am

THIS year looks set to achieve records in mediocrity as turbulent equity and foreign exchange markets have kept retail investors in a cautious frame of mind.

Redemptions look set to hit US$3 billion (HK$23.19 billion) and sales are set to reach $3.1 billion, leaving the industry potentially in a net sales position of about $100 million given sale and redemption trends to the end of the third quarter.

This compares with record breaking sales last year which reached $3.77 billion and redemptions of $3.79 billion, leaving the industry in a net redemption position of $21.12 million.

In 1993, sales reached $3.58 billion against redemptions of $2.85 billion, leaving the industry in a healthy net sales position of $1 billion.

Since records have been kept by actuaries Watson Wyatt in 1989, and including estimates for activity in the third quarter of this year, the industry by the end of the year will have achieved gross sales of $15.86 billion against redemptions of $14.64 billion, leaving the industry in a net sales position of $1.12 billion.

The net money flow into the industry since the first figures were kept is roughly $1 billion. Many industry practitioners believe this is not a bad figure given the size of the territory's investment-capable society of roughly 2.4 million people.

It is estimated, however, the unit trust fund penetration of Hong Kong society is between two per cent and five per cent of the overall population. In absolute terms, this means between 122,000 and 300,000 people invested, on average, a net total of between $8,000 and $3,300.

Unfortunately, these figures cannot be relied on. There are three flaws.

First, the Investment Funds' Association warns the numbers taken from the members might not be on the same basis, as money flows from outside Hong Kong might be included.

In the second place, the unit trust industry data might not be reflecting the activity of unit holders overall as trends followed might be the activity of just a small portion of unit holders.

In a survey of retail investors last year, the stock exchange found four per cent of the sample accounted for more than 70 per cent of share investment activity. This could be the case with unit trusts as a few high-net-worth clients move moderately large amounts of money.

The final problem with the figures produced from the association is the $1 billion of net sales merely reflects what happened in 1993. In the asset inflation days of 1993, huge amounts of cash poured into Asia-Pacific funds. If you remove the net sales of this heady year, the net sales in the remaining six years is $116.9 million.

However, an encouraging trend throughout the seven-year period is volume of sales and redemptions in unit trusts has been rising steadily - from about $750 million in 1989 to more than $3 billion last year.



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