Although a few sectors enjoyed popularity, the first half of this year saw Hong Kong’s retail investors deserting mutual funds.
There were net outflows of $4.7bn from funds authorised for sale in Hong Kong between 1 January and 30 June 2020, according to data from the Hong Kong Investment Funds Association (HKIFA).
It was the biggest net decline, compared with full annual figures, since the HKIFA began recording the flows in 2006, and worse even than the $4.6bn net redemptions in 2008, at the height of the global financial crisis.
The data covers transactions for funds authorised by the Securities and Futures Commission that were conducted through retail banks, whose ultimate investors were Hong Kong residents, IFAs and insurance companies, including lump sum investment and unit-linked products, and direct sales to individual investors with a Hong Kong registered address.
Hong Kong retail fund annual gross and net sales
Source: Hong Kong Investment Funds Association
The worst-hit were most bond fund categories, which had an aggregate $4.4bn of net outflows, with only US fixed income products attracting net inflows.
However, recent data from Morningstar Direct shows that investors in Hong Kong (and Singapore) returned to fixed income products in the second quarter, with total inflows of $33.8bn and dominated by $8.6bn of net inflows into US dollar-hedged global corporate bond funds.
In fact, funds available for sale in Hong Kong or Singapore recorded net inflows of $49.5bn during the three months to the end of June, after severe outflows in the first quarter of this year, according to Morningstar, with inflows into equity products in the second quarter more than compensating for outflows during the first three months of the year.
But, in Hong Kong only, most equity-invested vehicles experienced exits, including Asia (ex-Japan) funds with $493m net outflows, China (-$634m), and Hong Kong (-$145m), HKIFA data show.
The redemptions took place largely in the first quarter of the year, but the outflow trend continued during the subsequent three months, despite the rally in risk- assets prompted by the monetary stimulus measures introduced by US and European central banks.
The notable exception to the first quarter bias were products with Hong Kong equity mandates, which saw the bulk of their outflows in the second quarter (-$110m versus -$35m in the first quarter), as the PRC announced plans to impose a national security law in Hong Kong.
However, there were some bright spots amid the HKIFA data.
International equity funds attracted net inflows of $627bn and “sector” funds, including those with mandates to invest in technology stocks enjoyed net inflows of $518m, according to HKIFA data.
Perhaps inevitably amid so much uncertainty, money market funds had buyers as investors sought the safety of low-interest bearing cash deposits, and they attracted net inflows of $141m.
However, there are indications that retail investors are becoming less risk-averse.
A recent survey by Last Word Media research, found that Asia’s third-party fund buyers are enthusiastic about China and Asia-Pacific ex-Japan equities over the next 12 months.
Annual gross sales breakdown by major fund categories