Fixed income dominated what were record retail fund inflows in Hong Kong last year, accounting for an even bigger share of gross sales (67.7% of assets) than in 2011, against a figure of 18.6% for equity funds, as of November 30.

That marks a turnaround in the share of gross sales from 2007, when equity funds accounted for 84.2% and bond funds 6.3% of the total, finds the Hong Kong Investment Funds Association (HKIFA). The share of gross sales of bond funds has steadily risen over the past five years largely at the expense of equity fund inflows.

By November 30, gross and net retail fund sales for 2012 – at $51.4 billion and $13.6 billion – had already outstripped the previously record yearly inflow figures set in 2007 ($45.5 billion gross and $6.9 billion net).

The expectation is that gross sales will end 2012 at more than $55 billion, says Lieven Debruyne, chairman of the HKIFA and Hong Kong CEO of Schroder Investment Management.

However, asked whether he expects there to be the same strong growth of mutual fund flows in 2013, he says: “Probably not, as that would really push the numbers out there. But I do believe we’re in an environment where fund sales can remain very, very healthy, and I don’t believe the numbers we see now can’t therefore be sustained.”

In fact, bond funds account for an even greater proportion of net sales than gross sales, at $13 billion (of the $13.6 billion) total. Of that, high yield was the most popular category of product, accounting for $4.3 billion, more than a third of total net fund sales in the year to November 30.

Global bonds, the most popular category in 2011, ranked second in 2012, with $3.2 billion. European bond funds, not surprisingly, saw a small net outflow, notes Debruyne.

Meanwhile, on the equity side, gross fund sales (at $9.56 billion as of November 30) were 39% weaker in 2012 than the year before (when they totalled $16.35 billion). Moreover, equity funds recorded net outflows of –$1.2 billion as of November 30 (as against $572 million of net inflows for the same period in 2011).

It seems, as is often the case, retail fund investors have lagged the stock market rally. “Even though we’ve seen quite strong equity market performance in 2012, particularly in the second half, we’ve not seen that translate into equity fund sales,” says Debruyne.

Of the 16 equity fund categories, 10 saw outflows last year, with the biggest redemptions coming from Asian regional and single-market funds, he adds. “These are the ones with the most assets, so it is obviously related."

Greater China equity funds, for quite a while the most popular equity category, saw strong outflows of $279 million, notes Debruyne. “That’s not a complete surprise, given how poor the performance was in the Chinese equity market last year.”

Hong Kong and North American equity funds were two of the six categories that posted net inflows in the year to November – albeit fairly small figures.

Asked whether there may be a bubble forming in the bond fund market, Bruno Lee, chairman of the HKIFA’s unit trust sub-committee, says: “It is important to look at the relative value of bonds versus other instruments.”

Global investment-grade corporate bond yields have fallen to pre-2008 crisis levels, he notes, but they retain a relatively attractive spread over government bond yields, which are at historical lows.

“So from an absolute level [corporate bond yields are] not as attractive as in recent years, but on a relative basis, the yield is relatively attractive compared to sovereign debt,” says Lee, Asia ex-Japan head of retail at Fidelity.

Hong Kong bond versus equity fund flows were reflected by a similar outcome in Singapore. Bond fund net sales in the Lion City totalled S$2.07 billion ($1.68 billion) in the year to September 30, as compared with net outflows of –S$1.45 billion from equity funds over the same period.