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Asia’s investors join the European bandwagon

Asset allocators in Hong Kong and Singapore tell FSA they are planning to increase allocation to European equities and data shows that capital flows into European equity funds have been increasing.

The ebbing of political uncertainty, together with positive macro-economic indicators and improving company earnings have contributed to upbeat sentiment on European equities.

After a period of political uncertainty triggered by Brexit, “the political environment [in Europe] seems to have stabilised,” said Andy Budden, investment director at Capital Group, at a recent press briefing.

In addition “many growth indicators in Europe are positive right now,” he continued, crediting them to the ECB’s loose monetary policy and several member state initiatives to unwind austerity measures. “[All this] makes us more positive about investing in European stocks than we have been for some time,” he concluded.

Asian fund selectors share the same sentiment. In Fund Selector Asia’s quarterly Asset Class Research survey, respondents from Hong Kong, Singapore and Bangkok have strongly indicated that they intend to increase their asset allocation to European equities within the next 12 months.

In June, 54% of respondents said they would increase their allocation and only 6% said they would decrease it. These figures have remained essentially unchanged since March.

Intentions for asset allocation to European equities in the next 12 months

Data: FSA’s Asset Class Research

Globally, inflows into Europe equity funds turned positive in December 2016 after almost a year of net outflows.

Fund flows from investors in Hong Kong and Singapore are difficult to isolate from global flows, as many funds sold in these two financial centres are cross-border funds that don’t report their sales in individual markets. Nevertheless, looking only at data on funds domiciled in Hong Kong or Singapore, and those domiciled elsewhere, with Singapore or Hong Kong as their primary region of sale, FSA has been able to ascertain that the region’s investors have increased their European equity exposure.

Net flows into European equity funds

Data: Morningstar, in US dollars, 31 May 2017. Funds domiciled in Hong Kong or Singapore and offshore funds with Hong Kong or Singapore as primary region of sale.

Morningstar data for the year ending 31 May, show first, tentative net fund inflows in January, after mostly net outflows throughout 2016, and a strong increase in May.

Investors in European equities have been rewarded with returns of 20% on average in the first half of 2017, with the best performing SFC-registered fund, the Henderson Horizon Pan European Smaller Companies Fund growing by 27.4%.

One-year performance of European equity fund sectors

Data: FE, Hong Kong SFC-registered funds, returns in US dollars.

Part of the Mark Allen Group.