Equity demand driving HK funds industry

A rebound in global and regional equity funds has seen Hong Kong record positive inflows, although bond and balanced vehicles have suffered. A bright future is forecast for RMB product.
Equity demand driving HK funds industry

Hong Kong’s funds industry is on course for double-digit growth on the back of a strong rebound in the sale of global and regional equity product, a forum heard.

There is also optimism over the continued growth of renminbi-denominated product in the city, although appetite for both bond funds and balanced funds declined sharply.

The Hong Kong Investment Funds Association (HKIFA) reported yesterday that gross equity fund inflows in the city had topped $29 billion across the first nine months of this year, accounting for almost half (46.5%) of gross sales overall.

The equity fund sales figure represents a 94% year-on-year increase. Net inflows also soared, surging from last year’s $2.9 billion to $6.3 billion – representing 55% of flows.

But gross inflows into both bond funds and balanced funds were each at about half of those registered by equity funds, with the former attracting $16.6 billion and the latter $15.1 billion. This represented a year-on-year decline of 22% and 16%, respectively.

Bruno Lee, chairman of the HKIFA, attributed the healthy growth in equity fund sales to continued improvement in retail investor sentiment amid a backdrop of a stable global economic recovery, low inflation and low interest rates.

He highlighted the importance of China’s economic rebalancing from an export-oriented to a consumer-driven economy as a driver for investor sentiment.

“While growth in equity funds demand is particularly strong, we continue to see significant demand in income oriented funds investing in fixed income and equity income underlying securities,” Lee said.

The most popular products by sales were regional European equity funds, accounting for $3.2 billion in inflows, followed by international equity funds at $1.9 billion and Asia (ex-Japan) equity funds at $1.1 billion.

“We have seen the US market have a very steady and sustained recovery,” noted Lee. “In Asia we have seen election results, particularly in India and Indonesia, which have driven the market up significantly in anticipation of more pro-business reform.”

Interestingly, demand for international and European funds waned in August and September, with gross inflows only about half of the previous months.

While total inflow into balanced funds was a shadow of last year there was still healthy demand that increased over the year. The first quarter saw net inflows of $39 million in the first quarter, $915 million in the second and $2.7 billion in the third.

Out of the six bond fund categories, high-yield funds are top in terms of gross and net sales, with $9.1 billion and $1.8 billion, respectively. That reversed last year’s net outflows of $570 million. Nevertheless, August and September saw $1.4 billion in outflow.

Overall fund sales in Hong Kong registered healthy growth in the first nine months, with gross sales of $63.2 billion and net sales of $11.5 billion, representing year-on-year increases of 12% and 7.5%, respectively.

Association vice-chairman Terry Pan forecast that 2014 would see a 10% growth in gross sales, based on the assumption that fourth-quarter sales figures would match last year’s data for the final three months.

Looking ahead, Lee said the association was focusing on accommodating demand for RMB products, especially since Hong Kong’s renminbi deposit base had increased to more than Rmb1 trillion and investors were looking for a place to invest the currency.

Speaking on the sidelines, Sally Wong, HKIFA chief executive, noted that currently if a fund was RMB-denominated and its underlyings were RMB assets, it might be able to get authorisation from Hong Kong’s Securities and Futures Commission (SFC).
“If the fund is RMB-denominated, but the underlying assets are not RMB assets [Asian equities, for instance], currently it can only be authorised if it is Hong Kong-domiciled,” she explained.

“Thus what fund managers wish to see is relaxation so that non-Hong Kong-domiciled funds [such as Ucits funds domiciled in Luxembourg and Dublin] that are RMB-denominated can also be authorised.”

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