In the last quarter of 2018, there was a clear consensus among Asia fund selectors about the next 12 months: avoid risky assets and seek safe havens in cash and developed market government bonds, according to the latest asset class survey by Last Word Research.
The survey, which is conducted quarterly, asks fund selectors in Hong Kong, Singapore, Thailand and Malaysia about their long-term intentions around asset allocation to a range of asset classes.
Optimism in Q4 was a third of what of what it was in Q1, with almost half of respondents in Asia either pessimistic or uncertain.
Last Word Research asked fund selectors about cash holdings: “In the next 12 months, will you increase cash positions, decrease them, maintain them at current levels, or do you not have a cash position?”
Nearly 60% said they would raise their cash levels – a 20% net upward shift compared with Q3 — while only 10% would reduce them.
The sharp declines in most financial asset markets prompted by investors’ anxieties about US interest rates, the escalating Sino-US trade dispute and slowing China economic growth, presumably contributed to this widespread cautious sentiment.
A 20% net increase in positive sentiment for developed market government bonds reinforces the move towards a refuge to ride out future storms.
Source: Last Word Research. Fourth quarter 2018 compared to third quarter.
Intentions towards emerging market bonds, however, are mixed. One-third of respondents plan to raise allocations, but an almost identical proportion are likely to reduce their holdings.
There is far less ambiguity about European and US equities as well as developed market high yield bonds, where future sellers far outweigh potential buyers. Global equity funds are even more unpopular, with a nearly 35% downward turn in sentiment.
However, there are bright spots.
Japan has it supporters, with almost twice as many buyers as sellers. China equities are popular among fund selectors in all three countries surveyed, with over half of them expecting to add to allocations. Asia ex-Japan equities are also favoured relative to other global equities markets.
Perhaps most remarkable in the risk-averse fourth quarter, was the confidence in absolute return funds, with half of investors expecting to add to their allocations. On the other hand, they might provide the desired balance between returns, income and volatility management that eludes conventional asset classes.
