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Hong Kong investors are abandoning the time-honoured tradition of backing equities and are instead choosing cash and guaranteed funds.

A spokesperson for the Hong Kong Investment Funds Association (HKIFA) confirmed net fund inflows last month matched recently released figures for October. Investors, it appears, are shying away from equities due to recent market volatility.

However, Dresdner RCM Global Investors director Mark Konyn believes the Hong Kong market will see an influx of funds in the first quarter of next year.

With the US Federal Reserve expected to cut interest rates, Hong Kong sectors such as property and banking are expected to see the biggest rebounds after a nine-month period in which these equities consistently underperformed.

For now, investors appear more eager to put their money into safer options.

While net fund inflows for October rose to US$134.3 million, most of this went into cash funds, which attracted US$49.65 million.

'When the market is more volatile, investors go for cash funds,' said HKIFA executive director Sally Wong Chi-ming.

Guaranteed funds, not surprisingly, also performed strongly, netting 30.97 per cent of the total amount with US$41.59 million. International funds also performed well, raking in US$33.97 million.

Ms Wong also expects equities to pick up in the future. 'Over a longer term, more people would probably consider adding equities to their portfolios.'

She also believes the flight of investors from equity markets may be a blessing.

'Generally speaking, equities can be more volatile than bank deposits and bonds,' said Ms Wong.

'Investors have to be aware of the volatility of equities and make sure they fit in with their risk appetites.'

The flight from equities has surprised many in the industry, for Hong Kong investors are famed for sticking with them through thick and thin.

However, gross sales in Hong Kong equity funds dropped 38 per cent to US$30.25 million in October.

Mr Konyn believes history is on Hong Kong's side and expects an upturn in Hong Kong retirement funds.

'The nine months from the end of February to the end of November ranks as the worst nine-month period since 1988,' said Mr Konyn.

'Ninety per cent of the negative nine-month [periods] have been followed by a very strong nine months, in terms of performance.'

A number of factors support his sentiments. The US election resolution, falling oil prices and US interest rate cuts are all expected to contribute to a recovery.

At present, Mr Konyn sees the US and SAR bond markets as the world's best performing asset classes. The Dresdner RCM Retirement Fund asset allocation reflects the prevailing market sentiment, with 32 per cent invested in cash and fixed income.

The Mandatory Provident Fund (MPF), which is expected to increase demand for funds, has had little effect on fund sales.

'The impact of the MPF on existing unit trusts and mutual funds is of a more medium and long-term nature,' said Ms Wong.

'As people understand more about the features of fund investment, people will contemplate to put in more.'

However, Ms Wong does expect the MPF to change people's perceptions of risk.

'We don't think the MPF will encourage people to be more or less risky in investment. Instead, we believe the MPF will help the public to have a better understanding of risks.'



Local investors abandon stocks for safe ground