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HK fund industry net sales slump in 2013

The Hong Kong fund industry witnessed a slump in net sales in 2013 over the previous year, according to Hong Kong Investment Funds Association, which attributed the decline to bond funds which saw net annual outflows for the first time since 2007.
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Traditional Chinese Junkboat sailing across Victoria Harbour, Hong Kong

Despite registering total gross sales of US$71.1bn in 2013, a 30% increase over the previous year, net sales were down by 27% to US$10.3bn during the period under review, the industry association said.

After robust growth during the first six months of the year, the pace of inflows “subdued later when there were signs of possible policy changes, which sent markets into jitters and dampened investment sentiment,” said the HKIFA.

There was a recovery in funds sales in October and November, but outflows renewed in December, which the HKIFA noted saw the highest monthly net outflows since 2008, at US$1bn.

The HKIFA added December net outflows were due, more to a slowdown in gross sales, rather than a surge in redemptions. Gross sales in December dropped by 46% over the previous month to US$3bn and redemption totalled US$4bn, down by 22%.

Lieven Debruyne, HKIFA chairman said: “Even though 2013 has turned out to be another record year with over US$70bn in gross sales, net sales of investment funds had a much more difficult final month of the year compared to previous months with December showing the largest net outflows in a single month for five years.”

“The trend of increased demand for equity funds at the cost of bond funds continued, with equity funds seeing net inflows, with the exception of emerging market equity funds. Demand for yield in the current low interest rate environment helped sales of balanced funds particularly, as many of these funds provide a regular pay out.”

Balanced funds recorded the highest net sales over 2013 of any category, with net sales of US$9.4bn.

Category review

Interest in bond funds waned especially since June amid concerns over the fate of the US quantitative easing programme.

Gross sales in bond funds accounted for 34% of the industry gross total in 2013, paling in comparison to the 67% of the gross total it accounted for in 2012. The share of equity funds and balanced funds represented 32% and 30%, respectively, of the industry total.

In sharp contrast to the net inflows of US$13.5bn registered in 2012, bond funds saw net outflows of US$3.6bn during 2013, the HKIFA said, adding the last time bond funds saw net annual outflows was in 2007.

Among the various bond categories, only Asian bond funds and European bond funds managed to attract net inflows, at US$844m and US$23m, respectively. Global bond funds, high yield bond funds and emerging markets bond funds, meanwhile, suffered net outflows of US$2.3bn, US$980m and US$959m, respectively.

Gross sales of equity funds reached US$22.9bn, 1.2 times higher than that of 2012. They were able to attract US$4.6bn of net inflows, reversing the trend of 2012, when net outflows of US$1.2bn were recorded.

Ten out of the 16 equity fund categories registered net inflows. International equity funds came first with net inflows of US$2.6bn. This was followed by European regional market equity funds and Asia regional (ex Japan) funds, which managed to pull in US$1.2bn and US$889m, respectively.

For the third quarter too as reported, equity funds were popular in Hong Kong notching up net inflows of US$1.8bn.

The trend in inflows is also more or less similar to fund managers’ outlook on overall markets. A recent survey by HKIFA found an 85% majority of asset managers in Hong Kong are optimistic about the outlook for equity markets and many (69%) continue to hold a negative view of bonds.

Part of the Mark Allen Group.