Stock markets have been volatile globally and the fund industry, especially those connected to the Mandatory Provident Fund in Hong Kong, has suffered badly as a result. Fund managers are already talking of the possibility that all the gains derived in the first half of the year will be wiped out. According to the Hong Kong Investment Funds Association (HKIFA), in the first six months the fund industry registered gross and net sales of US$21.06 billion and US$5.10 billion, respectively. They represented an increase of 30.6 per cent and 188.2 per cent over the respective levels registered in the second half of last year. The fund association says the industry registered robust sales in the first half of this year, as investors were eager to put their money to work under the extreme low interest rate environment and the threat of inflation. On a half yearly basis, gross sales in the period were the second highest on record and net sales even reached a record high. In the first half, the monthly gross inflows were between US$2.5 billion and US$3.9 billion, and each month registered net inflows. However, net sales dropped gradually after a strong start in January and only started to pick up in May. According to HKIFA, flows into equity funds outpaced bond funds in the first quarter, but the tide turned in the second. Figures provided by the HKIFA show that in the first half of the year equity funds accounted for 49.5 per cent and bond funds 39.9 per cent of the industry gross total. But in terms of net sales, bond funds fared better. Unlike last year, when most of the net inflows went into bonds, bond and equity funds managed to attract sizeable net inflows in the first half at US$2.78 billion and US$2.06 billion, respectively. Looking ahead, the second half of the year seems to be more volatile than the first. Desmond Ng, chairman of the HKIFA, says markets have been plagued by a lot of uncertainties such as the euro zone sovereign crisis, the worsening United States fiscal position and the anaemic global economic growth. 'The inflationary pressures in the emerging markets have dampened investment sentiment. The downgrade in the US credit rating has further exacerbated the situation and global markets have experienced extreme volatilities of late,' Ng says. Terry Pan, vice-chairman of HKIFA, adds that, 'given the continued uncertain market outlook, it is likely investors will remain on the sidelines. Fund sales will probably remain muted in this quarter and may start to improve towards the final quarter'.