However, gross fund sales — inflows only across asset classes — were down the first nine months by 18% year-on-year to $50.4bn, dragged down by outflows in equity and balanced funds, according to data from the Hong Kong Investment Funds Association.
“While gross sales have declined, we continue to see investors actively managing their investments and shifting funds to more stable fixed income options in light of the US elections and other market uncertainties,” Arthur Bacci, HKIFA’s chairman, said in a statement.
Bond funds fared well through September, as gross sales rose 174% over the same period last year, reaching $27.1bn and accounting for around 54% of the industry total sales. Improvement was also seen on a net basis, with net sales turning from outflows in 2015 to inflows of around $11.4bn.
| Bond fund category | YTD gross sales | Net inflows (outflows 2015) |
| Global bond | $10.9bn | $5.9bn ($789m) |
| High-yield bond | $3.9bn | $1.1bn ($3.7bn) |
| Asian bond | $9.7bn | $3.6bn |
| Emerging market bond | $930m | $450m |
Source: HKIFA
Contributing to the strong sales of bond funds are global bond funds. Year-to-date gross sales increased sevenfold to $10.9bn and with inflows of $5.9bn this year, which compares to 2015’s outflows of $789m.
Asian and EM bond funds also saw a surge in sales.
Equity fund outflows
Year-to-date, gross sales of equity funds dropped by 66% to $13.1bn.
Net sales were up slightly to $7.5bn compared to $7.1bn last year.
Almost all equity fund sectors reported outflows on a year-to-date basis, according to HKIFA.
European regional (excluding Eastern European countries) funds saw the heaviest outflows, contributing 34% to the total outflows in equity funds. Concerns about Brexit resulted in net outflows of $2.34bn for the second and third quarters. International equity funds also saw heavier outflows in these two quarters.
| Equity fund category | YTD gross sales | Inflows (outflows) |
| European regional | – | ($2.34bn) for 2Q and 3Q |
| China and Greater China | $1.86 bn versus 2015 $10.7bn | – |
| Sector funds | – | $247m |
| Global EM | – | $23.8m |
Source: HKIFA
China-related equity funds, particularly China equity and Greater China equity, experienced the largest retreat in gross sales with net outflows in every month of this year due to the market volatility starting in the second half of 2015 and into the beginning of 2016, according to HKIFA.
On the flipside, both sector and global emerging market funds experienced inflows year-to-date.
Balanced funds continued to see net outflows, though the level narrowed to $471m from $1.5bn recorded last year.
Fixed income reversal?
Although investors have been bullish on the fixed income market for quite a few years, there is a possibility for a reversal in 2017, according to Luke Ng, senior VP of research at FE Advisory Asia.
In mid-November there was a sharp fall in fixed income performance in general, driven by government bonds, Ng said.
“It is probably because the US government bond has been quite expensive after Trump was elected. Investors started speculating that he will be able to increase fiscal spending, cutting tax, and pushing US growth.”
That would pressure the Federal Reserve to increase interest rates, which is a negative for fixed income, he added.
However, he noted that a pullback from fixed income funds does not mean an automatic inflow into equities. Equities are another question, as there are different sectors or areas that investors should consider, he said.
In terms of the performance of funds in Hong Kong, year-to-date, emerging markets equities are leading the pack:
