Liberalisations stir interest in Greater China equities

The pending HK-Shanghai Stock Connect Programme and fresh RQFII quotas see Hong Kong sentiment turn bullish, finds an HKIFA survey. Expectations also improved for Japan and emerging markets.
Liberalisations stir interest in Greater China equities

Fund managers in Hong Kong are growing upbeat on Greater China equities on the back of the pending HK-Shanghai Stock Connect programme and additional RQFII quotas being handed out.

In all, 39% of respondents to a Hong Kong Investment Funds Association survey* were overweight Greater China equities last month, more than double the 17% from its last survey in April. Those with underweight positions declined, but only by two percentage points to 15%.

Sentiment also improved towards Japan, with 73% of managers now overweight, a healthy surge from 47% previously. There was a marginal increase in managers underweight Japan, by 1 percentage point to 7%. Those taking a neutral stance on the nation more than halved to 20%, from 47%.

Emerging markets also saw an increase in allocations, with a third of respondents overweight compared with 0% in April. That bullishness was reflected in underweight allocations too, which plunged from 60% to 13%.

Europe fell out of favour, consistent with findings from this month's Bank of America Merrill Lynch fund manager survey, with 50% of respondents reporting an overweight position for July, down from 73% in April. Those holding an underweight position on Europe increasing to 21%, from 7%.

But overall, managers in Hong Kong are now a little less optimistic on equities than they were in April, although they still remain bullish. While 73% were overweight in July, that was down from 80% in April. The number of respondents holding a neutral stance more than doubled to 27%, from 13% previously, although no manager was underweight, compared to 7% in April.

Bonds gained favour, with the number of managers underweighting them down 20 percentage points in July to 40%, from 60% in April. However, that improvement wasn’t mirrored in overweight positions, which remained flat.

Within fixed income, managers turned positive on emerging market bonds, with 47% of respondents overweight, up from 20% in April.

European bonds also attracted inflows, with 31% of managers reporting overweight positions, up from 15% in April. However, 31% were underweight, a slight decrease of eight points from April.

Managers moved out of high-yield bonds, with those reporting overweight positions declining to 53%, from 66% in April, and those reporting underweight positions increasing to 20% from 7%.

They also moved out of US bonds, with the number overweight sinking by two-thirds to 7%, while underweight positions rose from 43% to 50%.

At the same time respondents moved out of cash. Managers holding a positive view declined to 14%, from 21%, and those underweighting the asset class increased to 50%, from 36%.

* A total of 15 fund management companies with combined assets under management of around $9.4 trillion responded to the HKIFA survey.

¬ Haymarket Media Limited. All rights reserved.