Hong Kong investors stung by stock market losses seek refuge in low-risk products, brokers say
- Amid increasing market volatility, investors have turned defensive in their investment choices, Everbright Securities analyst says
- Huatai International launched Cash Pro, an idle cash-management service, which invests clients’ funds in a low-risk mutual fund
Hong Kong investors’ demand for low-risk products and defensive asset management is rising because of financial market volatility, which has led to some brokerages introducing new products.
The first quarter saw major international markets go into a tailspin due to geopolitical tensions, Covid-19 lockdowns in China and rising interest rates globally.
“As global markets became more volatile, investors have become more defensive in [the choice of] asset classes they hold since February,” said Kenny Ng Lai-yin, a strategist at Everbright Securities International.
Hong Kong’s benchmark Hang Seng Index fell nearly 6 per cent in the first three months, while the Hang Seng Tech Index plummeted 20 per cent as a result of Russia’s invasion of Ukraine in February and the Federal Reserve’s decision to raise interest rates in March. The Fed’s move to increase rates again in May to counter inflation in the US, which had hit a 40-year high, has further weighed on the markets.
There has been strong demand from small investors for less risky investment products, said Zhu Yali, managing director of Huatai Financial, a Hong Kong-based subsidiary of the mainland Chinese securities firm Huatai Securities.
Eyeing such demand, Huatai launched Cash Pro, a cash-management service that automatically invests their client’s idle cash into a low-risk mutual funds offered by China Asset Management (Hong Kong), which invests mainly in money-market instruments such as government bills and time deposits.
“If it is a bull market, everybody will go into the stock market or even riskier assets and will enjoy the higher yield coming from the riskier assets,” Zhu said. “However, right now, [it is expected that] uncertainty will last for the rest of the year.”
Cash Pro can be one of the choices for those looking for a more defensive option, she added.
Since the launch of the service on May 16, over 4,000 people have signed up for the service via the firm’s app, with total assets under management amounting to more than HK$700 million (US$89.2 million), the company said.
Investors’ demand for less volatile assets such as bonds has also increased, said Everbright’s Ng. “However, because the US interest rate hike will affect bond prices, some investors will buy some investment grade bonds with short durations,” Ng said.
Ng predicted that some investors might grow more interested in capital-protected derivatives, such as minimum redemption notes, which limit losses when the asset price goes down.
Another trajectory investors could possibly take, Ng said, is adding highly defensive stocks into their portfolios, such as utilities and high-dividend paying companies.
Ng’s defensive picks included mainland telecommunications giant China Mobile, while his high-dividend payout bets were Bank of China and China Construction Bank.
However, not all brokers suggest investors jump onto the safer-bet bandwagon.
“Hong Kong is a peculiar place because people like to take risks,” said Louis Tse, managing director of Hong Kong-based broker Wealthy Securities.
Tse said his clients were more willing to take risks despite market volatility and said that he would not suggest a switch from the stock market to bonds or money-market funds.
“The thing about bonds and money market is that the yield is not attractive,” he said.