Mutual funds available for sale in Hong Kong or Singapore recorded $52.6bn of net inflows for the first quarter of 2021, compared with $71.1bn the previous quarter, Morningstar Direct data shows.
Although the total volume in the first three months of this year was lower, the shift out of the relative safety of fixed income funds into riskier equity products, evident in the final quarter of 2020, was maintained.
Equity funds took in net $52.8bn, which was the strongest quarter since 2019. Although the Morningstar China Index (in USD) fell 0.45% after strong gains last year, there were robust and rising net net inflows into both China equity and China equity A-Shares fund categories, taking $5.8bn and $5.5bn during between 1 January and 31 March.
At the individual fund level, Blackrock’s BGF China Bond fund enjoyed most net inflows ($3.1 billion) during the quarter, as FTSE Russell announced in late March the inclusion of China government bonds in FTSE World Government Bond Index (WGBI) series.
“We continue to expect structural inflows into China’s onshore assets to continue as its weightings in global equity and fixed income indices are rising,” said Wing Chan, Morningstar’s director of manager research practice, EMEA & Asia.
There was also solid demand for sector funds. The technology products received $9.9bn of new money in the first quarter of 2021 after bringing in $10.1bn during the previous three months. Ecology and alternative energy themed fund also benefited from the huge demand for ESG and climate-focused funds, garnering $5.4bn and $3.9bn respectively.
Bond retreat
On the other hand, the recent pick up in US Treasury and corporate bond yields in response to fears of inflation, pushed investors away from US dollar fixed income funds.
Four out of five categories with the most net outflows belonged to fixed income categories, notably global corporate bonds (USD hedged), with $6.8bn of net redemptions, global emerging markets bonds with net outflows of $3.2bn, and global high yield bonds, suffering net withdrawals of $2.5bn, Morningstar Direct data shows.
Both locally domiciled and cross-border open-ended funds that are registered for sale in Hong Kong or Singapore are included for data collection, as it is common for Hong Kong and Singapore investors to buy European Ucits funds.
Net Flows by Key Asset Classes
| Asset Class | Net Assets Mar 2021 ($bn) | Average return 2021 Q1 ($) | Net Flows 2021 Q1 ($bn) | Net Flows 2020 Q4 ($bn) | Net Flows 2020 Q3 ($bn) |
| Equity | 1117.7 | 3.26% | 52.8 | 45.3 | 14.4 |
| Fixed Income | 791.8 | -2.22% | -6.5 | 26.7 | 32.8 |
| Allocation | 215.3 | 0.83% | 5.3 | -1.2 | -3.0 |
Net flows by Morningstar Fund Categories
| Net assets Mar 2021 ($bn) | Average return 2021 Q1 ($) | Net Flows 2021 Q1 ($bn) | Net Flows 2020 Q4 ($bn) | |
| Leaders | ||||
| Equity Technology | 94.9 | 2.07% | 9.9 | 10.1 |
| China Equity | 63.7 | -0.96% | 5.8 | 4.8 |
| China Equity – A Shares | 29.9 | -4.35% | 5.5 | 4.8 |
| Equity Ecology | 29.4 | 1.95% | 5.4 | 6.6 |
| Equity Alternative Energy | 12.8 | 2.22% | 3.9 | 3.8 |
| Laggards | ||||
| Global Corporate Bond (USD hedged) | 39.6 | -3.14% | -6.8 | 0.6 |
| Global Emerging Markets Bond | 64.7 | -4.02% | -3.2 | 2.9 |
| Global High Yield Bond | 51.6 | 0.56% | -2.5 | 1.6 |
| USD Diversified Bond | 20.1 | -3.48% | -2.1 | 0.1 |
| Equity Large-Cap Blend | 32.8 | 6.54% | -1.9 | 0.5 |
