Posted inFund Flows

Asian fund flows plunge amid volatility

Despite the impact of market dynamics on mutual funds, real assets and income protection assets have shown resilience, said Cerulli Associates (Cerulli).
Purification water fountain in Kyoto, Japan with liquid running from spout faucet

With the Russia-Ukraine conflict, knock-on effects of inflation and rising interest rates, fund flows and fund launches suffered a gloomy few months in the first quarter this year.

New flows into Asia’s mutual funds fell 26% quarter-over-quarter to $131.1bn, according to data from Cerulli.

Due to the poor market sentiment, the industry also felt it was not a good time for new fund launches.

The total number of new funds fell from 206 between August and December 2021, to 131 between January and May 2022, according to the Investment Trusts Association. In May this year, only nine new funds were introduced.

Meanwhile, China’s ties with Moscow also led to some investors shying away from both Chinese stocks and bonds; Beijing’s refusal to condemn Russia’s actions in Ukraine also put pressure on fund managers concerned about their China exposure.

Further, the geopolitical tension unsettled Asian bond investors, who are worried on the probability of Russia defaulting on its bond obligations having detrimental effects on the wider market.

As a result, net new flows from Asia to bond funds plunged to $7.8bn in the first three months of this year, down from $74.3bn the previous quarter, according to Cerulli.

Real assets gain favour

On the other hand, in an environment of high inflation, on real assets, income and capital protection are re-emerging as core themes, said Cerulli.

“Asset-gathering opportunities will continue to emerge as market conditions change,” said Ken Yap, managing director, Asia at Cerulli.

“What is important is for fund managers to stay nimble and alert to investor demands, even as they take geopolitical sensitivities into account and navigate an exceptionally difficult macroeconomic backdrop.”

As investors seek to protect their portfolio from inflation and asset depreciation, Cerulli noted that infrastructure investments are in high demand.

Moreover, investors are also seeking entry points to revive their equity portfolios, by exposure to some asset classes that have recorded significant outflows.

According to Cerulli, China equities are among the fund strategies chosen by the majority of Hong Kong and Singapore managers to promote to distributors over the next two years, despite a general shift away from the asset class now.

A similar case exists in Japan, where US and global large cap equities saw strong inflows in the beginning of 2022 as local investors believe such products offer better returns than domestic equity products to cover their retirement.

Part of the Mark Allen Group.