Hong Kong protests, trade war undermine stock fund sales with investors rushing into safety of bonds

Enoch Yiu

A year of political and economic upheavals has left its imprint on Hong Kong-based investors, who dialed back risk appetite in favour of safe haven products.

Sales of stock funds slumped 52 per cent in the first 10 months this year as months of anti-government protests hurt equity market performance, according to the Hong Kong Investment Funds Association. The flight to safety has resulted in bond funds capturing more than a doubling in sales compared to the same period a year earlier.

Hong Kong’s stock market started on a promising note when it rallied 13 per cent in the first quarter. Losses soon emerged as anti-government protests erupted, sending the Hang Seng Index to its worst quarter in four years during the July-September period.

The Hang Seng Index rose four per cent during the period under review, while global bond fund tracked by the Mandatory Provident Fund gained 5.5 per cent, according to data from Lipper.

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The current mood may prevail in 2020, keeping investors on the cautious side of the fence, according to Kenrick Chung, general manager of employee benefits at Realife Insurance Brokers.

“The unfolding trade war, the outcome of Brexit terms, and the US presidential election are some of the outstanding issues in the market,” he said. “North Korea is also a wild card that could also stoke volatility in the market. There is still a lot of unknown.”

Hong Kong Investment Funds Association Chairman Bruno Lee talks on industry trends in 2019 at HKUST Business School in Central on December 23, 2019: Photo: Felix Wong

Uncertainty created by the US-China trade war has also put investors on the tenterhook for much of this year, Bruno Lee, chairman of HKIFA, said a media briefing on Monday.

The implications to global trade and economic growth, as well as the geopolitical tensions will continue to affect the market, he said. T he first phase trade deal, and the UK election results, however, have helped shore up sentiment in recent weeks, he added.

“As global interest rates are expected to stay at a relatively low level for some time, investors will continue to be keen to look for investment options that can offer yields and enable them to manage risks better,” Lee said.

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Lee said sales of equity funds amounted to US$12.7 billion through October. Sales of funds dedicated to Hong Kong equities fell by 52 per cent to US$582 million while those for Chinese equities dropped 44 per cent to US$1.96 billion.

Sales of bond funds rose 156 per cent to US$53.6 billion, HKIFA said. The bestseller was global bond funds which saw a 245 per cent surge in inflow to US$28.46 billion. European bond funds added 172 per cent more at US$13.25 billion, while sales of funds dedicated to Asian bonds doubled to US$13.25 billion.

“Asian investors have missed a lot of the returns from US and European markets because many have not felt confident that the higher returns from these markets can be sustained,” said Stewart Aldcroft, chairman of Cititrust.

Overall, sales of all types of funds industry wide amounted to US$79.45 billion this year through October, HKIFA said, little changed from a year earlier. Even so, there was a net fund inflow of US$15.4 billion because investors withdrew a smaller sum from their existing investments, it added.

 

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