The Hong Kong Investment Funds Association is happy with itself again. A recent survey has shown 7.8 per cent of the adult population investing in funds as opposed to only 3.2 per cent in 1997 and sales of investment funds have been way up so far this year.
Let's take a closer look at some things that underlie this trend. Start with the fact that Hong Kong people may have been buying more investment funds but they have not been doing it to make Hong Kong investments.
As the first chart shows, sales of funds invested in Hong Kong equities accounted for less than 5 per cent of total investment fund sales over the last year, down from 20 per cent in 1997.
Odd as it may seem, bond fund sales have far outstripped Hong Kong equity fund sales over the last two years, accounting for a 12-month peak of 27 per cent of the total in mid-1999 although this figure has since come way down again.
Boring old bonds instead of stocks do not seem an investment preference that suits Hong Kong and there is reason for thinking so. Those bond purchases were largely mistimed. The buying binge started as bond prices hit their peak and declined as bond prices improved again. It was probably a one-time anomaly induced by financial panic in 1997.
But sales are not the only way to look at investment fund figures. You also have redemptions and when you subtract these from sales you get your net investment in funds.
Net investment has also been way up this year, running in March at a 12-month average peak of US$168 million a month. Once again, however, it has not been Hong Kong that investment fund buyers wanted. Quite the reverse. As the second chart shows there has been net disinvestment in Hong Kong equity funds this year.
The big gains in net investment have rather been odd ones again, Japanese equities and, more particularly, European equities in which net investment has been growing by an average of US$76 million a month over the last year. What is happening here?
Fund managers may speak for themselves but some things appear obvious. The first is that Hong Kong people regard themselves as knowing easily as much about their own market as fund managers and prefer to buy their stocks directly rather than going through funds and paying away a big middleman's fee.
They may do some Hong Kong investing through funds in a raging bull market such as in 1996 and early 1997 but otherwise not.
The second is that they use investment funds to move into markets about which they know little but which they think may go up. That big boost in European equities, for instance, probably represents a bet that the euro is due for a bounce.
This also suggests that they do not use funds so much for long-term investment as for speculative plays on markets in which they do not know the individual stocks. Hong Kong mutual fund buyers are not like their counterparts abroad.