HK net fund sales in sharp decline amid global volatility

Hong Kong saw net fund sales fall by half in the first six months of this year amid heightened volatility in global markets, industry data has revealed.

The decline of 49.8% has been blamed on global economic unrest and uncertainty, from Europe and the US to North Asia.

However, an industry association has expressed hope that value could now be seen in declining equity markets, giving a boost to overall fund sales in the second half of this year.

The drop in net fund sales, which totalled $3.71 billion in the first half, came despite gross sales rising by 14%, compared to the first half of 2014, to reach more than $47 billion. This suggested that there have been strong redemptions during the reporting period.

Bruno Lee, chairman of the Hong Kong Investment Funds Association, pointed to continued market uncertainty relating to mainland China’s A-share market, Greece’s debt crisis and potential US interest rate increases as reasons for the disappointing figures.

The uncertainty could continue into the second half of the year and affect sales, noted Lee.

“In terms of the growth of mutual fund sales and net sales, we expect this will be affected by this uncertainty, so it is possible that the second half will not be as exciting as the first half,” Lee said.

But there was still optimism for the second half of the year, insisted Lee, pointing out that value could soon be emerging due to the ongoing sharp market correction, drawing in investors who missed out on the first-half A-share bull run as well as those looking to make long-term allocations.

Moreover, despite the increased pace of renminbi depreciation, it remains hard to see what impact this could have on fund sales, although the brisk sales of European and Japanese funds could provide an indication.

“Exchange rate is only one of the factors that affect the total return of [an] asset class,” said Lee.

“Based on the experience of other markets, for example Europe and Japan, during the past one or two years we’ve seen the Japanese yen and euro depreciating against the US dollar quite significantly. On the other hand, we can see that interest in European equity funds is still very strong because it’s been reflected in the market performance.”

The biggest fund sales were those focused on equity, garnering 64% of the gross sales. Between January and June, overall sales reached $30.1 billion, up 55% over the corresponding period in 2014, which saw sales of $19.4 billion.

China equity funds during the period made the biggest contribution with gross sales of $7 billion, followed by Asia ex-Japan, European regional markets, international and Greater China regional funds.

However, it was European equity funds which pulled in the best net sales ($2.3 billion), followed by China equity funds at $2.2 billion.

Meanwhile, balanced funds and bond funds made up 17% and 15% respectively of the industry gross total in the first half.

However, interest in bond funds seems to have waned. Gross sales of bond funds were at $7 billion during the first six months of the year, down by 39% compared to the first half of 2014.

Net outflows for bonds were also seen with $2.2 billion leaving the asset class during the six-month period, in sharp contrast to the $2.2 billion of net inflows during the same period in 2014.