Investors wary of 'overpriced' SAR markets

Investors continued to favour the region's stock markets in April as Asia's recovery gathered pace, but shied away from Hong Kong over concerns it was overpriced, according to the Hong Kong Investment Funds Association (IFA).

Figures released yesterday by the IFA showed gross redemptions from Hong Kong funds grew to US$41.07 million - higher than the previous month's figure of $39.86 million - with net outflows of $24.92 million.

In contrast, overall net inflows for the 50-member association came to $169.91 million, with sales of $565.28 million.

Single Asian country funds fared particularly well, attracting net inflows of $25.27 million with sales of $72.62 million.

But it was Asia-Pacific ex-Japan regional funds that attracted the best net inflows of $44.9 million.

The latest figures suggest for the first time that the changing sentiment toward the Asia-Pacific region may be sustained and that the exodus of capital that marked the previous two years may finally be turning around.

Chairman of the IFA unit trust sub-committee, Eleanor Wan, said Hong Kong equities were missing out on new investment because markets were back around pre-crisis levels and were considered comparatively expensive.

'The market is high and we expect some consolidation,' Ms Wan said.

'The reason why Hong Kong has been the laggard is probably because investors seem to be of the view that prices are already ahead of the fundamentals.' Investors remained cautious about Asia in general but had been encouraged by the gradual improvement in economic fundamentals, especially in countries like South Korea and Thailand which had undertaken structural reforms, she said.

However, Ms Wan warned investors should not disregard the risk profile across Asia which remained high, especially for single Asian country funds.

Investors' appetite for bonds also eased from its peak during the second half of last year, with net sales of $57.05 million in April, compared with the first quarter monthly average of $118.93 million.

Fund managers believe that fears the Federal Reserve will raise official interest rates shortly have taken the lustre off fixed-interest investments.

Cash funds, which have also been strongly supported, suffered an even bigger reversal in fortune in April, with net outflows of $19.46 million.

Investors have started to move away from both North American and European equity funds.

North American funds saw net inflows of only $1.28 million while European funds pulled in just under $18.86 million.