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Southeast Asia investors in risk-off mode

Separately, despite the coronavirus, domestic fund managers in Southeast Asia are expected to form partnerships with foreign players to launch new types of products.
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Last year, fixed income was the only asset class that had net inflows into feeder funds sold in Malaysia, Thailand and the Philippines, according to a report from Boston-based research firm Cerulli Associates. Fixed income feeder funds in the three markets collectively attracted $300m in 2019, which compares with net redemptions of $1.8bn from equity feeder funds.

According to the Cerulli, most managers in Southeast Asia (ex-Singapore) believe that bond funds, as well as money-market funds, will continue to be popular this year as investors are likely to seek for safety in the current market environment.

“Although most distributors initially expected a rebound in global equities this year, the conviction has wavered following the market turmoil and economic fallout caused by the coronavirus pandemic in the first quarter of this year,” the report said.

So far, investors in the region have taken a risk-off stance. In Malaysia, only fixed income products (including domestic and feeder funds) registered net sales this year among all fund categories, with RM 4.1bn ($940m) in net inflows as of the end of April, according to data from Morningstar Direct.

Investors in Thailand are even more cautious. Only money market funds had net inflows (THB 169.89bn, $5.31bn) during the first four months this year.

YTD net inflows/outflows (as of the end of April)

Malaysia (in RM) Thailand (in THB)
Mixed-asset -200m -15.33bn
Equity -2.13bn -16.39bn
Fixed income 4.18bn -411.98bn
Money market -1.92bn 169.89bn
Source: Morningstar Direct

“The trend [toward fixed income and money-market funds], if it continues this year, could hit inflows into higher-margin products such as equity funds and affect the profitability of asset managers, especially those that focus mainly on equities,” the report said.

However, not all equity products had huge net outflows in the region. For example, while equity funds were largely avoided in Malaysia, investors poured money into technology and healthcare products during the first quarter, according to data from Morningstar.

A similar trend was seen in Hong Kong, where net inflows toward sector funds doubled to $483m from the combined flows in January and February, according to data from the Hong Kong Investment Funds Association.

New feeder fund partnerships?

Separately, the report noted that domestic fund managers in Southeast Asia are expected to form partnerships with foreign managers to launch products despite the global spread of the coronavirus.

According to the report, managers said that they have plans to form new product partnerships for global equities, global fixed income and thematic equity strategies, especially in healthcare and technology.

Domestic firms have already begun offering new feeder funds. For example, Kuala Lumpur-based RHB Asset Management partnered with Alliance Bernstein to roll out the RHB American Income Fund in March. The product is a white-labelled version of AB’s American Income Portfolio.

In Thailand, Thanachart Fund Eastspring launched earlier this year the Global Technology Fund, which is the white-labelled version of the Polar Capital Global Technology Fund. At the same time, Eastspring launched another feeder fund, the TMB Eastspring Global Smart Bond Fund, which is under the TMBAM Eastspring brand. The fund mainly invests its assets to JP Morgan’s Income Fund.

Since their launch, both products have become popular among Thai investors. As of the end of April, the technology fund had net inflows of THB 6.7bn, while the global bond product registered net sales of THB 6.7bn, according to data from Morningstar Direct.

Thanachart Fund Eastspring was created after Eastspring completed an acquisition of 50.1% of Bangkok-based Thanachart Fund Manager in late-December. The TMBAM Eastspring brand was created after Eastspring completed an acquisition of 65% of Bangkok-based TMB Asset Management in 2018.

Part of the Bonhill Group.