Funds out of favour amid market dip

PUBLISHED : Friday, 22 February, 2008, 12:00am
UPDATED : Friday, 22 February, 2008, 12:00am

Hong Kong investors have been buying fewer funds since October and the decline is likely to continue this year as stock markets around the globe stumble, fund managers say.

After falling 14 per cent in November from October, gross fund sales tumbled a 54.4 per cent last December, a tally by the Hong Kong Investment Funds Association showed. Net sales, taking into account investor redemptions, fell 75.6 per cent in December last year.

'We're seeing a definite decrease in appetite in the market,' said Gerry Ng Joo-yeow, chairman of the association and the managing director of Baring Asset Management's Asian operations.

The association does not yet have sales data for this year, but it said banks' front-line sales people reported activity dropping.

'Investors are taking a wait-and-see approach, and those that have been investing since 2006 have made a lot of money so they have more capacity to hold out,' Mr Ng said.

Having said that, fund houses still sold US$45.55 billion worth of products last year, up 87.1 per cent from a year earlier.

In recent months, investors spooked by the subprime mortgage crisis and resulting economic slowdown in the United States as well as dimmer business prospects in Europe, have been looking to Asian markets for growth.

'Investors still believe that there is potential (in Asia). But I'd temper that by saying that they need to diversify more and not focus all their assets in one area,' Mr Ng said.

Not only are Hong Kong investors failing to diversify geographically but they are also pouring most of their money into stocks, making them less prepared to weather any dips in the market.

Gross sales of equity funds last year doubled from 2006 to account for 84.13 per cent of total sales.

'In this part of the world investors really like performance, so they go where the performance has been good in recent years,' Mr Ng said. 'So far it has worked for them.'

However, the association noted that tastes in funds change according to market conditions, with investors overweighting bond funds in 2001 and 2002 when stocks were not performing as well.