Hong Kong retail funds suffered $1.1 billion in outflows last December, driven by large redemptions that were attributed to investors nervous of global uncertainties.
The net outflows pulled down gross sales data for the last three months of 2014, leading to the worst quarter for fund sales since April-June 2012.
Despite the poor end to the year, the city’s funds industry enjoyed record-high gross sales of $77.7 billion, according to data released yesterday by the Hong Kong Investment Funds Association (HKIFA). The chairman of HKIFA sees a strong year of fund growth ahead, even with ongoing global risks and a worldwide economy still in recovery mode.
Gross inflows increased 9.3% last year compared with 2013, while net sales rose 21.4% to $12.5 billion – the city’s second-highest annual figure.
The funds industry on average enjoyed quarterly gross inflows of more than $20 billion during the first nine months - $20.6 billion in both Q1 and Q2, and $22 billion in Q3.
But the buoyant figures dropped sharply in the fourth quarter, falling to $14.5 billion of gross inflows.
The same pattern was seen in net inflows, with the first three quarters each attracting between $3.7 billion and $4 billion. But in the final quarter, net inflows had shrunk to $1 billion.
Bruno Lee, HKIFA chairman, said the fall was largely due to redemptions in bond and equity funds during the month amid geopolitical and market uncertainty. He highlighted troubles in Ukraine and Greece as partly to blame.
“Generally when we look at the annual trend we had a pretty good year for 2014, and then, given uncertainty in global markets, we wouldn’t say it was a big surprise to see it before the end of the year,” he said.
“In terms of uncertainty, people are taking a cautious approach and are also talking about an imminent interest-rate rise in the US. There were cautious actions from regional investors towards the end of the year.”
HKIFA data showed there were large redemptions in December from international equity funds ($201.3 million), European regional market equity funds ($210.8 million), and high-yield bonds ($662.8 million).
Investor interest in equity funds had started to pick up in 2013, but it was in 2014 that these products managed to regain their leading position in gross sales.
Over the course of last year equity funds took up 46.7% of the gross industry sales total, compared with bond funds (25.3%) and balanced funds (24.6%).
Over the previous three years, bond funds had garnered the largest share of inflows.
Gross sales of equity funds reached $36.3 billion in 2014, 59% higher than that in 2013.
Equity funds were able to attract $6.9 billion in net inflow, up 50% year-on-year and accounting for 55% of the industry net total.
Developed market equity funds attracted most interest, with European regional funds seeing year-on-year inflows of $7.1 billion, up 296%. International equity funds attracted gross sales of $8.4 billion, a year-on-year rise of 66%.
But Asian single market equity funds recorded net outflows of $257 million. Total emerging market equity funds saw aggregate outflows of $492 million, although lower than $728 million of outflows in 2013.
In comparison, gross inflows into balanced funds dropped by about 10% last year to $19.1 billion. Net inflows suffered a greater drop of about 45% to $5.2 billion.
Gross inflows into bond funds also decreased to $19.7 billion last year, down 20% from 2013. However, on a net basis bond funds recorded net inflows, at $541 million, reversing the net outflows of 2013. This was attributed to strong inflows into Asian bond categories, which managed to pull in close to $1.7 billion of new money.
The Hong Kong funds industry has seen substantial increases in gross annual fund sales since 2010, which HKIFA attributed to low interest rates and high liquidity. The last time total annual gross sales declined was in 2009 when they hit $15 billion, compared with $18 billion in 2008.
However, the year-on-year increase in gross sales was smaller in 2014 than in the previous four years, both in percentage terms and the dollar amount. In 2014 gross sales increased $6.6 billion on 2013, a rise of 9.3%. This compares to previous increases of 92% ($13.8 billion) in 2010; 30.2% ($8.7 billion) in 2011; 46.4% ($17.4 billion) in 2012; and 29.5% ($16.2 billion) in 2013.
But Lee denied that growth was plateauing, saying the base was much higher now and also the type of investor had changed as the market had grown, which affected purchases and sales.
He said he was optimistic for the coming year, with loose monetary policy in the US, Europe and Japan boosting economic prospects.
Even though a US interest rate rise has been forecast this year, Lee said he expected gradual increases, which would be easier to bear than a spike. This would be “quite positive for the fund market”.
But he added that demand for bonds would probably not be as strong as in previous years, with yields already low and prices high.