Hong Kong annual fund flows hit record high

Net sales of mutual funds authorised by the Securities and Futures Commission (SFC) for sale to Hong Kong retail investors amounted to $14.4bn in 2019, surpassing the previous high of $14bn in 2012, according to the Hong Kong Investment Funds Association (HKIFA).

However, the direction of flows among different asset classes showed sharp contrasts, despite the best year in aggregate for mutual fund sales in the territory since the HKIFA began recording the data in 1999.

Despite a strong year for stock markets, with the S&P 500 up 31.49% and the MSCI World Index 25.19% higher (according to FE Fundinfo), equity funds had net outflows of $5.11bn, including $1.3bn of net redemptions from dedicated mainland China products and $1.9bn net withdrawals from global and country sector products, for instance technology funds, despite the promotion of thematic funds by several asset managers last year.

Balanced or mixed assets funds were also unpopular, experiencing net sales of about $4bn.

Escalating political protests in Hong Kong and the US-China trade dispute are likely not only to have contributed to a recession in the territory, but induced caution among its investing public.

Instead, their preference turned unequivocally to bond funds.

There were $24.04bn of net inflows into funds investing in fixed income securities, as investors either sought safety in investment grade bonds or clambered for income from high yield bonds. All categories of fixed income funds enjoyed net purchases, notably global funds, which attracted net inflows of $15.68bn and Asia bond funds which gathered net inflows of $5.32bn.

Specialist emerging market bond funds were the least appealing, suffering net outflows during seven months in the year, although specialist high yield bond funds were popular, garnering net $1.04bn and indicating that investors were only selectively risk-averse – especially if the yields were high enough.

SFC-authorised funds sold in Hong Kong 

Source: HKIFA

The tilt towards fixed income products is confirmed in data collected by Broadridge Financial.

As many as eight out of the top 10 selling funds in Hong Kong last year had a bond investment mandate, and two of them were fixed maturity products (FMPs) managed by Invesco. FMPs gained popularity through the year as investors were persuaded by the prospect of declining US Treasury and investment grade bond interest rates to lock in semi-guaranteed yields, typically two-to-three years.

Many asset managers joined the bandwagon, with investment mandates moving increasingly down the credit curve to generate more enticing yields.

The best-selling fixed income product was the $3.18bn JP Morgan Asian Total Return Bond Fund, managed by Jason Pang and Shay Yann Ho. HSBC had three funds in the top 10 best-sellers, including its $1.29bn Asia High Income Bond Fund, which was recently authorised by the China Securities Regulatory Commission for sale in the mainland under the Mutual Recognition of Funds scheme.

The BEA Asia Bond and Currency Fund was another notable fixed income product among the top 10. Managed by Pheona Tsang since 2012, it also has the distinction of being the best performing SFC-authorised bond fund during the past decade, posting a cumulative return of 119.05%, according to FE Fundinfo data.

Yet even the relative safety provided by fixed income funds was insufficient to retain investors’ confidence by year-end, as the protests in Hong Kong shifted into a higher gear.

There were net outflows of $1.56bn in December, reversing a trend that saw successive monthly inflows throughout the year. As a result, inflows in the fourth quarter of $451m were well down on the net inflows in the first, second and third quarters of $3.79bn, $4.93bn and $5.2bn respectively.

Top 10 mutual funds sold in Hong Kong, 2019

Source: Broadridge Financial