Fund firms slash cash, target equities

Managers are more optimistic on equities, with Europe and the US growing in favour while emerging markets are in freefall, finds a Hong Kong Investment Funds Association survey.
Fund firms slash cash, target equities

Asset managers in Hong Kong are seeking to put more money to work in equities, notably in developed markets, while slashing cash holdings and remaining especially bearish on bonds, a survey finds.

Overall, 85% of respondents to the Hong Kong Investment Funds Association (HKIFA) poll in mid-January said they were overweight equities, up from 77% in the previous survey last October.

Fewer firms took a neutral stance on the asset class, down from 23% to 15%, while no managers are underweight equities

At the same time only 8% of managers overweight bonds and 69% are underweight – consistent with the October findings. The remaining 23% were neutral.

But almost double the number of managers are underweight cash – up from 27% to 50%. Only 8% are overweight cash and 42% adopt a neutral stance.

Within the various equity markets, the developed markets of Europe, the US and Japan are clearly favoured over emerging ones.

Double the number of managers has moved from being neutral to overweight on European equity markets – 62% compared with 31% in the October reading. Those taking a neutral position dropped from 54% to 23, while the percentage for underweight stayed at 15%.

Further, more managers have turned bullish on US equities, with 62% overweighting the market, up from 54% previously. Fewer are underweight (15% as against 23%), while those neutral is unchanged at 23%.

Interestingly, the overweight on China has shrunk from 67% to 60%, although more have adopted a neutral stance than turned negative. Some 30% of managers are neutral, from 22% previously, while the underweight camp remains at 10%.

HKIFA survey results

Respondents have also become more cautious on emerging markets as a whole. Only 23% overweight these markets now, down from 31%. Those who take a neutral stance also drop from 61% to 54%, while more have taken a negative view, up from 8% to 23%.

On the fixed income front, managers continue to favour high-yield bonds with 77% adopting an overweight, although this was down from 83% previously. Those underweight rose from 0% in October to 8% in mid-January.

Interest in European bonds picked up, with 18% overweighting the segment as against 9% previously. While 27% still underweight the sector, that is down from 23%. At present 55% maintain a neutral stance.

Just as with emerging market equities, more fund managers have turned bearish on EM bonds with 46% underweighting the sector, a sharp increase from 15% last October. Meanwhile only 15% overweight this category, a drop from 39%. Respondents taking a neutral stance also dropped from 46% to 39%.

Bruno Lee, unit trust subcommittee chairman for the HKIFA, notes that by and large the asset allocation approach of managers is similar in January to October, that more respondents favour equities over bonds.

“In terms of markets, managers have shown a preference for developed markets over emerging ones in view of the impacts of US tapering and the ramifications on global fund flows, as well as the economic fundamentals and the different pace of recoveries.”

A total of 13 fund houses responded to the survey representing global AUM of $8.8 trillion. Japan equity was added as a category for this survey.

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