Net flows into retail bond funds have strongly outpaced those into equity funds this year, and saw a substantial pick-up in the second and third quarters. Over the same quarters, equity fund inflows fell sharply, according to the Hong Kong Investment Funds Association (HKIFA).

For the first 10 months of 2011, net sales of bond funds represented 72.4% of the mutual fund industry in Hong Kong, while equity funds accounted for a meagre 13.3%. Gross sales were shared almost evenly, with equity funds accounting for 44.5% and bond funds 43.4%.

Net inflows to bond funds totalled $4.22 billion over the period, as against $774.5 million for equity funds.

From January to October, in terms of asset class, Asia bond funds attracted easily the biggest net inflows of $2.29 billion, up by 62.4% year-on-year. Meanwhile, Greater China equity funds saw the highest net outflows at $554 million, as compared to net inflows of $429.63 million in the same period last year.

Overall fund-industry assets in Hong Kong saw sharp falls in August and September, triggered by the renewed European sovereign-debt crisis and sluggish US economy. But sales moderated in October, says HKIFA chairman Kerry Ching, and she expects a positive figure in the first quarter of next year.

Gross sales in September were $2.59 billion, 35.8% down compared to August, and they dropped by 12.7% in October. Net outflows were $469 million in September and $290 million in October.

September saw the highest single-month net outflow since December 2008, but the redemption trend has stabilised in November and December, says Ching, who is also head of Hong Kong at Fidelity Investments.

“It will be more a flat situation [in terms of net sales] for the remainder of this month,” she adds. “The situation has improved, so we don’t see as much outflows as we saw in September and October.”

She also expects to see net inflows into funds in the first quarter of 2012, as investors typically re-arrange their asset allocation as part of their personal financial planning at the start of the year and also invest their 2011 bonuses.

That said, given current market volatility, the volume of “new money” is hard to predict and may be lower than first-quarter sales figures in other years, Ching notes. In terms of preference of asset class, she adds, if the global markets continue to be caught in uncertainty, investors would continue to favour bond funds over equity funds.