The coronavirus pandemic has prompted most private investors in the Hong Kong to adjust their portfolios, and many saw sharp market falls in March as a buying opportunity, a Schroders Global Investor Study has found.
As many as 85% of 500 Hong Kongers who responded to the survey, conducted between 30 April and 15 June 2020, made changes to their investments, with 32% saying they moved “some” or “a significant proportion” into high-risk holdings.
The so-called “Generation X”, aged between 38 and 50, were particularly keen to take advantage of the extreme shock to markets, as the MSCI World index plunged 34% between 12 February and 23 March, according to FE Fundinfo data.
“Covid-19 came after a long period of rising stock markets, and… many investors were conscious of valuations becoming high,” said Rupert Rucker, Schroders’ head of income.
“So, they saw the February-March correction as a window of opportunity [and] we’re seeing a large cohort of investors not only committed to stock markets, but also increasingly watchful, looking to spot moments of value,” he said.
Although 22% of Hong Kong respondents said they moved “a significant proportion” of their portfolio into cash, Rucker suspects that “some investors hold cash, and other less-volatile assets, as an ‘opportunity pot’ to spend when share prices fall to attractive levels”.
In fact, funds available for sale in Hong Kong or Singapore recorded net inflows of $49.5bn during the three months to the end of June, after severe outflows in the first quarter of this year, Morningstar Direct data showed.
Fund selectors in Hong Kong, Singapore and Thailand also turned more positive in the second quarter, with many planning to reduce cash levels and raise allocations to risk assets over the next 12 months, noted Dylan Emery, group editorial director at Last Word Media, the publisher of FSA.
Hong Kongers’ apparent optimism — despite the recession and social unrest last year, and Beijing’s crackdown this summer — is also predicated on their expectations that the negative economic impact caused by Covid-19 will last only six to 24 months, according to Schroders, whose survey encompassed 23,000 investors worldwide.
However, another recent study, found that in the face of difficult economic and political conditions at home, the typical Hong Kong retail investor’s portfolio is broadening rapidly into a range of new assets.
Fifty-two percent of investors surveyed by Broadridge Financial were already diversifying their portfolios from a Hong Kong focus to globally balanced investments, with a strong tilt towards North American markets (56%), followed by wider Asian market exposure (54%).
Still optimistic
Yet, they remain confident about generating strong returns, according to Schroders.
On average, Hong Kongers expect annual total returns of 10.3% over the next five years, and have only slightly lowered their short-term income expectations, with 8.1% expected to be achieved over the coming 12 months, compared with 8.8% a year ago, according to the survey.
Schroders believes those lower income expectations are still unrealistic, in the wake of falling investment grade bond yields and companies cutting or cancelling dividend payments.
But, “this backdrop of ultra-low interest rates is another possible explanation for investors’ readiness to remain invested in stock markets, or increase their exposure to higher-risk holdings”, said Rucker.
Indeed, 60% who describe themselves as having an “advanced” or “expert” level of investment knowledge, said that their level of worry if their investments drop for a short period of time is “non-existent”, which emphasises their higher risk tolerance during periods of uncertainty.
Nevertheless, the Covid-19 crisis has also triggered more vigilance over their savings, with 34% of investors stating they now think about their investments at least once a week, compared with 19% before the pandemic.
