HK fund managers favour Japan equities

The Hong Kong Investment Funds Association’s latest study, conducted in late July, saw a majority (73%) of fund managers being generally overweight on equities. But, their optimism has been gradually falling since the last two surveys carried out in April (80%) and in January (85%).

Japanese equities have clearly come into favour during the review period, with a significant 73% of the managers moving from being neutral to overweight, and even those taking a neutral stance dropping significantly.

The results of the survey come on the day Japan released its second quarter GDP data which revealed a 6.8% contraction. The drop was anticipated and had in fact been predicted to be as high as 7% by some economists.

While significant – it’s the biggest contraction suffered by the south east Asian country since the 2011 Tsunami – it had been expected and is the result of an increased sales tax introduced by the Shinzo Abe-led government.

Click here to read the results of the HKIFA’s April survey that saw fund managers preferring European equities and shying away from Japanese equities.

The HKIFA’s latest research also found fund managers continue to be sanguine about the US equity market and that an increasing number of respondents appear ready to up exposure into emerging market equities, reversing the stance taken in April.

Emerging market equities seem to have appeal to portfolio managers due to their attractive valuations with one-third of the respondents taking overweight positions in the asset class compared with none in April. This is further apparent with the number of underweight positions also falling to a meagre 13% in July.

Fund managers also slightly increased their exposure to Asian and Greater China equities, with those favouring the latter increasing their overweight to 39% from 17%.

Reflecting a cautious view on European markets, nearly half of the managers adopted an overweight position compared with 73% in April, while an increasing number took a negative view, up from 7% to 21%. 

Bond and cash positions

Mangers’ negative attitude towards bonds also softened, with average underweights declining to 40% in July from 60% in April.

Half of the fund managers surveyed are also now underweight cash, as compared with 36% in April.
Amongst the various bond categories, more fund managers (47%) have turned positive on emerging market bonds and interest has also picked up in European bonds, but the sentiment was more cautious on US and Asian bonds.

Bruno Lee, HKIFA unit trust subcommittee chairman said: “While fund managers continue to overweight equities compared to bond and cash asset classes in view of the recovering economic environment, investors are reminded to take an active role in reviewing their portfolio regularly based on their long-term investment objectives and risk tolerance given uncertainty and potential short-term volatility caused by sustainability of global recovery, geo-political risk and rising interest rate risk.”

For the first quarter, Hong Kong equity funds attracted net inflows even as industry net sales declined.  

For the calendar year 2013, Hong Kong’s fund management business continued its upwards momentum, with the combined assets at the end of last year rising by nearly 27% compared with 2012.

Results of the HKIFA Fund Managers Market Outlook Survey (late-July 2014), which sampled responses from 15 leading fund houses representing global assets of around US$9.4trn (£5.62trn)