Investor confidence is lower across developed Asia than in emerging markets in the region, according to a new study by Manulife Financial.
People in developed Asia are not confident that now is the right time to invest, finds the insurer’s inaugural investor sentiment index (ISI), for which 3,500 individuals were interviewed across seven markets in the region.
Taiwan and Hong Kong scored -8 and -4 respectively, in contrast to the greater optimism felt in the emerging Asia markets of Indonesia and Malaysia, which scored 54 and 52 respectively. (A figure below zero indicates negative sentiment and above zero positive sentiment.)
Malaysia, for instance, expressed optimism on the back of strong economic performance, says Michael Dommermuth, president of Manulife Asset Management Asia. In the fourth quarter of 2012, the country’s economy grew 6.4% year-on-year and 5.3% quarter-on-quarter. For the full year, Malaysia grew 5.6% over 2011, he adds, and this performance helped to boost domestic equity, property and debt markets.
By contrast, the export-led market of Taiwan suffered last year on the back of a slow global economic recovery. In the fourth quarter, there was talk of a luxury tax on premium properties and a capital gains tax on securities that weighed on the market, notes Dommermuth.
The results were also affected by emerging Asia’s younger populations, which tend to be more optimistic than their older peers in more developed markets.
Throughout Asia, there is a tendency for people to run high cash levels, amounting to one-third of their overall asset allocations. This is followed by real estate and equities holdings, which account for 25% and 12%, respectively.
High cash allocations, in particular among investors in developed markets, contradict their negative sentiment on the asset class, which is suffering from eroding purchasing power due to inflation amid a low-interest-rate environment.
This hoarding of cash is partly due to a perceived lack of better alternatives. For example, two-thirds of Asian investors say that it's a bad time to invest in equities because of market volatility.
Despite this, Manulife says now is a good time to develop its pensions business in the region, with its survey finding that 44% of Asian investors are behind schedule in meeting their financial goals, such as buying a property or planning for retirement.
Still, there is significant divergence between Asian markets in this regard. For example, 63% of Taiwanese respondents say they are behind schedule on achieving the financial goals, while 78% of Malaysians believe they are either on track or ahead of schedule.
In response to Asians’ reluctance to reduce their cash holdings, Robert Cook, chief executive of Manulife Asia, cites interest among its Japanese clients for foreign-currency deposit products. These benefit from higher yields than deposits, which have suffered from low interest rates for over a decade.
Fixed income is one area that has provided a stable, steady yield. “Over the past 12 years, Asia fixed income generated around 9% average annual returns and provides good relative stability,” says Dommermuth. “There has been only one year in the past 12 that had a negative calendar return, and that was 2008 during the peak of the financial crisis.”
Meanwhile, only a quarter of Asian investors say they have a professional financial adviser versus two-fifths in Canada, suggesting there is room for greater penetration.
But the Asian public is reluctant to use financial planners – more than a third of Hong Kong, Singaporean and Taiwanese respondents don’t use financial advisers, citing a lack of trust in them. Only 6% of those surveyed in Canada feel the same way.
The seven Asian markets surveyed by Manulife were Indonesia, Malaysia, China, Singapore, Japan, Hong Kong and Taiwan.