For the first four months of this year, nearly half the gross fund sales of the bank’s retail and private banking clients have been fixed income funds, which compares to about 30% in the first half of 2015, Lee told FSA.
Fixed income is expected to stay the preferred asset class due to expected market volatility driven by macro-events.
Sales in equity funds have been sharply reduced to 30% of total today from 70% in the first half of 2015.
“[Private banking clients] are still only observing the markets. More private banking or institutional customers are instead looking for individual high quality bonds with competitive yields.
“They are not showing much interest in gaining exposure through funds,” she noted.
Still, the bank’s net fund sales for the first four months of this year remained positive. The most popular products have been global bonds, global dividend products, as well as multi asset funds.
“Investors tend to welcome funds with regular and stable income.”
Lee said Hang Seng Bank hopes to introduce funds with liquid alternatives strategies, which are currently not available on its platform.
“These funds tend to buy more money market [products] and less equities, so investors hope to have yield enhancements rather than just holding cash.”
Products that aim to achieve stable and positive returns are currently under review, she said.
Less China interest
There has also been a decline in investor interest in China-related products, in particular, A-shares, Lee said. But sentiment might turn on positive economic data and news in the coming quarter, such as the launch of Shenzhen-Hong Kong Stock Connect.
Hang Seng is currently selling one mainland-domiciled fund – the HSBC Jintrust Large Cap Equity Securities Investment Fund – under the Mutual Recognition of Funds scheme (MRF).
The bank’s platform has a range of QFII and RQFII funds, which are run by overseas managers. Lee is currently reviewing whether it is necessary to include more MRF funds. However, investor appetite for MRF products is not strong, she said.
“MRF funds managed by domestic firms with on-the-ground experience and information should be able to add value to customers. But we are not rushing it.”
MRF fund due diligence might take longer than it does with funds from international fund houses, she said. “They are all new managers to us and we need to understand more about their investment principles and risk controls.”
Most MRF funds that the bank has under review are joint-venture firms linked to international fund houses, she said, because the communication process between the private bank and the asset manager tends to be more efficient with these cross-border partnerships.
The MRF has had strong capital inflows in one direction — north. Cumulative net cross-border sales of the four Hong Kong funds available to mainland investors since the beginning of this year were 24 times higher than the southbound flow, according to data from the State Administration of Foreign Exchange. Among the 37 approved mainland funds, 16 are currently available for sale to Hong Kong investors.
Offshore exposure
Hang Seng Bank also has a partnership with Shenzhen Qianhai Financial Holdings and has applied to set up a fund management firm onshore in China. The application is still pending approval.
In February, the bank introduced the Hang Seng H-share index fund for northbound sale through the MRF. The product is technically a mutual fund that invests only in Hang Seng H-Share Index ETF, according to bank officials.
Lee said it is an important part of strategy to introduce index funds to mainland investors as these products are considered simple and transparent.
“There is demand from mainland investors to diversify their equity exposure in China to include overseas exposure, especially through global allocation. But as they still have home bias, some might prefer putting investments in H-shares instead of A-shares,” Lee said.
