Greater China equity funds suffered $113 million in net redemptions in the first six months of 2011, the highest outflow among all funds covered by the Hong Kong Investment Funds Association (HKIFA).
It represents a sharp reversal of investor preference, given that Greater China equity attracted $822 million of net inflows over the same period last year when it was the most popular equity category.
Sally Wong, chief executive of HKIFA, told a briefing in Hong Kong yesterday that Greater China equity saw especially heavy redemptions in March and April, but they began tapering off in May and returned to net inflows in June.
“A key reason for the net outflows in March and April was concern about the inflationary pressure,” she explained. “As tightening measures set in, investors were concerned about the impact on economic growth.”
From the start of this year to August 12, Greater China equity funds recorded negative performance of -12.4%, also making them one of the worst performing segments (46th out of 53), according to HKIFA and Morningstar.
Emerging market equities, another star category last year, also saw net outflows of $7 million in the first six months of this year, compared with huge net sales of $444 million in the same period last year.
However, emerging market bond funds have picked up, attracting a net inflow of $1.4 billion in the first six months, compared with inflows of $321 million in the same period last year.
Wong pointed to the rapid development of fixed-income markets in emerging countries, combined with the dramatically improved fiscal standing of both corporates and governments. She also voiced confidence that the pattern of steady investment inflows into this category would continue.
Overall, the fund industry registered gross and net sales of $21 billion and $5 billion, respectively, which represents a year-on-year increase of 66.3% and 14.2%. It is also up by 30.6% and 188.2% on the second half of last year.
On a half-yearly basis, gross sales in the period were the second highest on record and the net sales even reached a record high, finds HKIFA.
The association puts the robustness of sales down to the fact that investors have become eager to put their money to work in a very low interest-rate environment and amid the threat of inflation.
However, given global market uncertainties, investor preferences have been markedly changeable this year. Flows into equity funds outpaced bond funds in the first quarter, but the trend reversed in the second quarter, the association notes.
According to HKIFA data, the market share of equity funds dropped from 56.8% in the first quarter to 43.1% in the second quarter; meanwhile, bond funds rose from 32.8% to 46.0%.
In light of the continued uncertain market conditions, HKIFA chairman Desmond Ng voiced concerns that there would be redemption pressure on equity funds in the third quarter.
Terry Pan, HKIFA vice-chairman, suggested investors would be inclined to remain on the sidelines. "Fund sales will probably remain muted in this quarter and may start to improve towards the final quarter,” he predicted.
HKIFA has 62 fund management companies as full/overseas and affiliate members. It has 49 associate members, including lawyers, accountants, trustees and other professionals involved in the creation and administration of funds.