Hong Kong investor confidence in global economy at lowest point in a decade, says JP Morgan

The combined forces of Brexit, the US election and a possible Federal Reserve interest rate rise have shaken confidence

PUBLISHED : Thursday, 13 October, 2016, 6:04pm
UPDATED : Thursday, 13 October, 2016, 10:30pm

Brexit, the contentious US presidential election and a possible Federal Reserve rate rise have shaken the confidence of Hong Kong retail investors who are the most pessimistic in a decade towards the global market, according to a JP Morgan survey.

The US bank’s Investor Confidence Index, a private gauge of Hong Kong investor confidence over the next six months, fell to 96 in the September survey released on Thursday, down from 104 in June but in line with the 95 level at the same time last year.

It is only the fifth time since 2008 that the quarterly index has slipped below 100.

All of the six subindices in the survey fell, with the measure on confidence in the global economic environment falling 18 points to 82, the lowest since the survey began 10 years ago.

“To me it’s not too surprising – there are too many [risk] factors [happening]at the same time,” said Marcella Pun, head of retail distribution at JP Morgan Asset Management (JPMAM), referring to the US election and Brexit as major factors. “It seems like everywhere has a bit of a problem.”

Over half of Hong Kong investors surveyed thought continuous weakening in the external economic environment was one of the biggest risks they faced in the remaining three months of the year, Pun said.

There are too many [risk] factors [happening]at the same time. It seems like everywhere has a bit of a problem
Marcella Pun, JP Morgan Asset Management

“The significant decline in confidence in the global environment reflects concerns on economic growth, volatile markets and uncertainty about the effectiveness of central banks’ policies,” she said.

Almost half the investors thought the US Federal Reserve could raise interest rates this quarter and 69 per cent expected any such increase to negatively impact the global market.

However, only 30 per cent thought Brexit would affect their investment strategy, while 18 per cent expect the November 8 US presidential election to have an impact.

Despite low confidence in the economic environment, 14 per cent of Hong Kong investors said they plan a more aggressive investment strategy over the next six months, up from June’s 11 per cent.

Confidence in the Hang Seng index was up, with one-third forecasting the city’s benchmark index would trade above 24,000 points within six months compared with 2 per cent last quarter.

Marcella Chow, JPMAM’s global market strategist, said Hong Kong’s market was “quite positive” and would benefit from the Shenzhen-Hong Kong connect scheme set to launch in November.

Chow expects the economic outlook will improve towards the end of the year as risks in the developed market become more balanced and the worst of the downturn in emerging market fades.

She said there is a possibility the confidence rating could improve in the first quarter of next year after a new US president takes office and the interest rate rise is in effect. “I think they may have a clearer picture [then],” she added.

If Republican nominee Donald Trump wins next month’s US presidential election there would be short-term volatility but that would eventually stabilise because the US Senate and Congress would remain divided between the two major parties.

“No matter who is representing the Republicans, there would still be uncertainty [if they win] because of another party winning [the election],” Chow said.

Overall, the factors behind the fall in the general index were the same as last quarter: the economic slowdown in China, possible interest rate rise in the US, and the depreciating renminbi, Pun said.

More than 500 retail investors with at least five years of continuous investment experience and liquid assets of over HK$100,000 were surveyed between September 2 to 25.

The Hang Seng index opened lower on Thursday morning and closed down 1.61 per cent at 23,031.30, its lowest level in a month and a half.

Minutes from the September Federal Open Market Committee meeting released on Wednesday in the US showed that officials expected to raise interest rates “relatively soon”. There are still two more meetings this year when the US Federal Reserve will discuss raising rates.