Bond funds seeing big outflows in Hong Kong

Net sales of mutual funds in Hong Kong fell by 77% year-on-year to $2.9 billion in the first 10 months of 2015, with bond products suffering the biggest redemptions, according to the Hong Kong Investment Funds Association (HKIFA)*.

This was an even bigger overall decline than the 50% drop in net fund sales for the first six months of 2014.

“Investors continue to react to the uncertainty created by the potential increase in US interest rates and slowing economic growth in China,” said Arthur Bacci, vice chairman of HKIFA.

In terms of overall gross fund sales, Hong Kong posted a 5% year-on-year drop to $65.2 billion in the 10 months to end-October. 

Bond funds suffered the biggest net outflows of $3.2 billion in the 10 months to end-October versus net inflows of $1.2 billion in the same period last year, and gross sales fell 38% to $11 billion in the first 10 months. 

Equity products did better, posting a gross sales increase of 26% year-on-year to $40 billion, accounting for 62% of the industry total. Net sales were flat year-on-year at $7.2 billion.

European equity topped the league table by net inflows ($2.7 billion), driven by analyst reports suggesting Europe has more upside potential than other markets, said Bacci.

He added that next year’s sales would depend on how much the US Federal Reserve increased interest rates. If there is strong economic growth and a resultant continuous increase in interest rates, there will be less demand for bonds, said Bacci, but if rate increases lead to an economic slowdown, investors will shift back to fixed income.

Terry Pan, HKIFA chairman, said he hoped fund sales would rise next year as Hong Kong and China regulators approved products for distribution under the Hong Kong-China mutual recognition of funds (MRF) scheme. This is widely expected to happen in the first quarter of next year.

Pan said he expected a large majority of the funds that applied for MRF distribution would be approved.

Some 17 Hong Kong-domiciled funds have been accepted by the China Securities Regulatory Commission for northbound (Hong Kong into China) distribution. About 40 mainland funds have applied to Hong Kong’s Securities and Futures Commission to participate in the southbound scheme.

* The data included mutual funds distributed by retail and private banks and investment-linked assurance schemes from insurance firms, but excluded funds sold under Hong Kong's Mandatory Provident Fund scheme.