Global FMs universally bullish on North American equities

One hundred percent of respondents are taking an overweight view towards North American equities in the first quarter of this year, according to the latest HSBC fund managers’ survey.

Meanwhile, 38% said they were overweight towards Japan, although the survey was carried out before the 9.0 earthquake struck off Japan’s east coast on March 11, triggering a tsunami.

But overall the survey showed a significant change in investor confidence, with all respondents bullish on equities and none on bonds and cash.

“Fund managers are looking to North American equities because of improving economic conditions, merger and acquisition activities and encouraging company reports,” says Bruno Lee, HSBC’s regional head of wealth management for Asia-Pacific.

But global fund managers shifted away from Asia-Pacific ex-Japan equities, from 75% with a positive outlook last quarter to 50% in the first three months of this year. This was because of concerns over rising inflation in the region, notes Lee.

Meanwhile, 43% of fund managers were neutral towards Greater China equities, up from 33% in Q4 amid concerns about tightening measures and credit control policies in mainland China.

However, all managers had turned positive towards Asian bonds in the first quarter of this year, from 60% in the previous three months, reflecting confidence in Asia’s economic fundamentals and the financial strength of select governments, sectors and corporate issuers in the region.

“Recent developments in the Middle East and Japan are expected to cause some uncertainty and market volatility, tempering the optimism in the first quarter,” adds Lee, “but the general view on long-term global economic recovery remains positive.”

HSBC’s quarterly survey analysed 12 of the world’s leading asset management houses. Overall, funds under management rose by $98.6 billion at the end of the fourth quarter of 2010, up 2.54% on the previous three months.

Equity funds led the increase, up by $79.1 billion, while bond funds were up by $23.6 billion. Money market funds dropped by $33.5 billion.

In the fourth quarter of 2010 funds flowed into fast-growing regions. Greater China equity funds saw inflows worth $2.2 billion on the back of sustained and resilient economic growth. Emerging market equities also registered strong inflows of $5.5 billion.

In a low interest-rate environment, global bonds attracted inflows reaching $16.9 billion. High-yield/emerging markets bonds saw inflows of $7.9 billion, albeit 26% lower than the previous quarter’s inflow as credit spreads narrowed, offering limited growth potential.

“Last quarter, our survey pointed to fund managers’ bullish views on emerging market assets,” notes Lee. “Fund flows in the fourth quarter of 2010 reflected this asset allocation strategy as equity markets in Asia-Pacific ex-Japan and Greater China presented growth opportunities. In the ongoing low-interest environment, investors continued to invest in bonds.

“Our survey aims to help investors stay alert for emerging investment growth opportunities and rebalance and diversify their portfolios according to their individual goals and risk appetite.”

Meanwhile, HSBC Fund Flow Tracker, which has recorded the net value of money flows since the third quarter of 2006, showed that equity funds continued to register outflows in a volatile global equity market.

At the end of the fourth quarter 2010, equity funds posted net outflows of $115.1 billion, compared with net outflows of $64.4 billion in the previous quarter. This increase was largely due to outflows from North American equities, as cautious investors locked in profit after strong quarterly performance.

Net outflows to Greater China equities rose 30% to $9.4 billion in Q4 last year, versus $7.2 billion in Q3. Net inflows to emerging market equities increased 19% to $34.3 billion in Q4, versus $28.8 billion in Q3.

Net inflows to Asia-Pacific ex-Japan equities fell slightly to $13.7 billion, from $13.9 billion last quarter. North American equities registered outflows of $14.5 billion compared with $1.8 billion in the previous quarter.

Over the same period, bond funds posted record cumulative inflows of $294.5 billion, up 15% from the previous quarter in a low-interest and high-liquidity environment.

At the end of 2010, polled managers reported funds under management of $3.98 trillion, representing over 16% over estimated total global AUM.