A survey of buy-side market participants shows rising expectations that investment flows in the coming 12 months will increase to developed countries, with lesser flows likely to head to China and other emerging markets.

Over 240 respondents from the industry, mostly based in Asia, and including fund managers, service providers and institutional investors, found overall expectations of the largest allocation of capital over the next 12 years hadn’t changed dramatically from last year, when AsianInvestor and Clifford Chance conducted a similar poll.

Equity capital markets are expected by 41% of respondents to receive investors’ largest allocation, while 14% say this will be debt capital markets. The survey allowed respondents to pick up to three types of investment product, and 65% chose equity capital markets among their top three expected allocations, versus 40% for debt. These figures are about the same year on year.

Some categories did record modest declines for expected inflows, including hedge funds, ETFs, infrastructure, money markets and private equity – but all in proportion to the inclusion of two new categories this year, commodities and Reits.

“Funds of funds are still struggling,” says Mark Shipman, partner at Clifford Chance in Hong Kong, who notes the survey finds only 3% of respondents believe funds of hedge funds will receive the largest capital allocation, and only 1% for funds of private-equity funds.

So from an asset class perspective, trends haven’t changed. However, the survey records significant differences from last year when it comes to geography.

We asked the industry to tell us which countries or regions would receive the biggest capital inflows over the next 12 months. Although China was the top perceived destination (56% of respondents cited it as one of their top-three most likely), this is down from last year, when 68% of respondents named China.

The same is true for Asia ex-Japan (50% named it as one of their three picks this year, versus 62% a year ago) and India (24% this year versus 38% last year).

Developed countries are somewhat more popular this year: the US was voted as a top-three destination by 42%, up from 39% last year; and Europe was cited by 20%, versus only 14% last year. Japan is expected to see a lot of flows, as it was named by 18% of respondents, versus only 12% last year.

“There is a clear steer away from emerging markets,” says James Walker, partner at Clifford Chance in Hong Kong.

This theme was echoed in another question, asking what asset class will receive the greatest investments in the next 12 months. This question was structured with more specificity. It found this year, 41% named global equities among their top-three picks. A year ago, global equities was only the third-most selected asset class on our list, with 39% of the 2010 vote.

The leaders last year were Asia ex-Japan equities and emerging-market equities (55% in the top three and 49%, respectively). This year Asia ex-Japan fell to second place with only 39%, a major drop, while global emerging-market equities came third with 34%, also a decline.

The same trend is seen in fixed income: global fixed income is expected by more respondents to be a top-three recipient of investment flows than a year ago (28% today versus 26% in 2010), while emerging-market debt is less so (24% this year versus 28% last year, when it came in fourth place).

The survey also asked which market segments would provide the greatest source of new flows to fund managers. Although the same two sources topped the survey as last year (sovereign wealth funds and pension funds), they are not as dominant as they were a year ago. Individual investors seem to account for rising expectations.

Last year, 41% named high-net-worth as one of the top-three most likely sources of new fund flows. This year, the figure is 50%. The story is similar for retail/mass affluent, judged by 37% of respondents last year to be a top-three source, versus 44% this year.

Shipman says the firm has not been doing an exceptional amount of work on retail-oriented fund registrations. “But private banking is going gangbusters,” he says.

As individual investors become more prominent to the industry, Clifford Chance expects issues around complexity, and possibly segregating client types or defining complex versus non-complex products, to become of greater importance.

The full results of the survey appear in the May edition of AsianInvestor magazine.