Cautious year ahead

PUBLISHED : Tuesday, 20 December, 2011, 12:00am
UPDATED : Tuesday, 20 December, 2011, 12:00am


The mutual fund sector has been hard hit by the market turmoil of the third and fourth quarters this year, and this shows in the performance of the fund industry in Hong Kong.

According to the Hong Kong Investment Funds Association (HKIFA), in the first 10 months of this year, the fund sector registered gross and net sales of US$33.74 billion and US$5.83 billion, respectively.

However, most of the inflows were registered in the first half when investors were keen to invest under the backdrop of extreme low interest rates and the threat of inflation. Fund sales peaked in May - net inflows at US$1.55 billion - and have been declining since.

Following the heavy sell-off of global equity markets due to the euro-zone debt crisis and concerns about the outlook of the United States economy in the third quarter, fund sales dropped significantly in September and October.

As to which categories were more popular for the first 10 months of this year, equity funds and bond funds came neck and neck in terms of gross sales: equity funds accounted for 44.5 per cent of the industry gross total, while bond funds took up 43.4 per cent. However, on a net basis, bond funds outpaced equity funds: bond funds accounted for 72.4 per cent of the industry total, whereas equity funds only attracted 13.3 per cent of the industry net inflows.

HKIFA says that out of the 13 equity categories, seven suffered net outflows. Greater China Region equity funds, the most popular category in the past few years, saw the highest net outflows, at US$554 million. This was followed by emerging markets equity funds, which pulled out US$240 million.

Among the six equity categories that registered net inflows, Hong Kong equity funds attracted the highest net inflows, at US$485 million.

'Fund sales, as expected, lost momentum due to euro-zone debt woes, the weakening US fiscal position and the series of sovereign debt downgrades in the second half of the year. All equity fund categories saw net outflows in September and October. Nevertheless, there is continuous new money going into bond funds amid extreme market volatilities. This is in line with the trend that the sales of bond funds have maintained much resilience since the global financial tsunami in 2008,' says Kerry Ching, chairman of HKIFA.

As for the outlook for next year, Terry Pan, vice-chairman of HKIFA, points out that due to the continued uncertain market outlook, it is expected that investors will adopt a more cautious approach and interest for higher risk products is likely to be subdued.