Retail funds record slight losses after downturn in global stocks
Retail funds in Hong Kong recorded an average loss of 0.92 per cent in the second quarter due to sharp adjustments in global equity markets, according to Standard & Poor's Fund Services.
Industry experts expect the third quarter to remain subdued with the volatile political situation in the Middle East forcing up oil prices.
Sally Wong Chi-ming, an executive director of the Hong Kong Investment Funds Association, said investors would take a wait-and-see approach.
'People want to see if a high oil price affects inflation and the economy, and whether there will be any more interest rate increases,' she said.
'However, I think funds sales will maintain at a steady level as some investors may shift their money from high-yield funds to money market funds or balanced funds,' Ms Wong added.
S&P said the average return of Hong Kong-registered funds recorded a modest negative return in the second quarter compared with a positive return of 6.9 per cent in the first.
This was due to the downturn in many global stock markets, led by sharp sell-offs in emerging markets, that resulted in double-digit declines, wiping out most of the first-half gains.
Equity and real estate funds suffered most, with negative returns of 2.35 per cent and 3.25 per cent respectively, while the best-performing category was derivatives, which experienced a positive return of 3.82 per cent, followed by money market funds, which delivered an average return of 3.2 per cent.
S&P fund services director Cynthia Case said: 'As world central banks tightened, we witnessed a dramatic re-pricing of risk as market participants unloaded riskier assets on fears of both a dramatic slowdown in global gross domestic product and earnings per share growth.'
S&P expects the global economy to moderate in the second half of this year, supporting respectable low double-digit earnings gains and preventing a major acceleration in inflation.
Lorraine Tan, a director of S&P's equity research, expects interest rate-driven volatility to persist throughout much of the rest of the year, until evidence of a soft landing emerges.
'We recommend investors use the periods of weakness to position their portfolios for better equity market performance in the fourth quarter and early 2007,' she added.