Hong Kong’s mutual fund sales down 18pc in first nine months amid volatile market

Fund sales shift from equities to bonds as investors seek safer bets

PUBLISHED : Wednesday, 30 November, 2016, 4:52pm
UPDATED : Wednesday, 30 November, 2016, 10:42pm

Mutual fund sales in Hong Kong fell 18 per cent in the first nine months this year, led by a decline in the sale of equity funds that were down 66 per cent during the period as investors were cautious amid volatile markets, according to the Hong Kong Investment Funds Association (HKIFA).

HKIFA, representing the local fund industry, said on Wednesday total mutual fund sales stood at US$50.4 billion for the first nine months, down 18 per cent year on year.

Leading the decline were equity funds which reported a 66 per cent drop in sales to US$13.1 billion.

There was also more redemption pressure on equity funds, which saw total outflows of US$7.5 billion in the period. Funds redeemed for cash stood at US$20.6 billion but this was offset by new equity purchases of US$13.1 billion, resulting in a net outflow of funds of US$7.5 billion this year.

This compared with a net inflow of equity funds of US$7.1 billion last year.

CitiTrust chairman Stewart Aldcroft said the fall in equity fund sales was mainly due to the volatile stock markets this year.

“The Shanghai stock market fell 10 per cent in January due to worries over the economic slowdown on the mainland. In June, we had the Brexit vote in Britain and then in November, we had Donald Trump elected as US president,” Aldcroft said. “All of these events surprised the markets and led to stock markets worldwide becoming very volatile. This has discouraged investors to buy in any stock related funds.

“However, the outlook is more positive as we have seen the US stock markets hit record highs recently. Although the US is likely to increase interest rates in mid December, it is likely to be a small increase such as 25 basis points. The launch of the stock connect between the Hong Kong and Shenzhen stock markets next Monday is also likely to bring in more investment in stock markets and hence would help boost stock funds sales,” Aldcroft added.

Arthur Bacci, chairman of HKIFA, said although total fund sales were down, investors remained confident in fund products because net inflows – or sales minus redemptions – increased 36 per cent to US$3.6 billion in the first nine months.

“While gross sales have declined, we continue to see investors actively managing their investments and shifting funds to more stable fixed income options in light of the US elections and other market uncertainties,” Bacci said.

“With the election resolved and predictions of increasing interest rates, we would expect investors to show increasing interest in equity funds,” Bacci said.

On a quarterly comparison basis, fund sales are improving. Total fund sales in the third quarter were 32 per cent higher than the second quarter at US$21.2 billion, thanks to strong sales of bond funds and balance funds which invest in both stocks and bonds.

Total bond fund sales rose 174 per cent year on year in September to US$27.1 billion. In the first nine months, there were net inflows of around US$11.4 billion.

Balanced funds continued to see net outflows, for a total of US$471 million in the first nine months, but that was in improvement on the US$1.5 billion in the same period last year, HKIFA figures showed.

Among all equity funds, European funds saw heavy redemption pressure over Brexit concerns. Britons voted to leave the European Union in a referendum in June, shaking investor confidence in European stocks and resulting in net outflows of US$2.34 billion for the second and third quarters in equity funds invested in Europe, HKIFA said.

China-related equity funds saw a substantial 83 per cent year on year decline in the first nine months to US$1.86 billion, while there were net outflows recorded in every month this year.

Global bond funds were best sellers as investors shifted their money to safer bets in bonds, resulting in total bond funds increasing sevenfold to US$10.9 billion in the first nine months, with a net inflow of US$5.9 billion so far this year. High yield bond funds and Asian bond funds were the best sellers.