HK suffers worst monthly outflow since '08

Hong Kong’s funds industry suffered $1 billion in net outflows in December led by bond funds, its highest monthly decline since the 2008 global financial crisis. This was driven more by a slowdown in gross sales than surge in redemptions.

The city saw a month-on-month drop in gross fund sales of 46% to $3 billion in December, according to newly released Hong Kong Investment Funds Association (HKIFA) data. It witnessed redemptions of $4 billion, down 22% on November.

While for the full year 2013 the fund industry recorded a record high for gross sales of $71.1 billion, on a net basis sales actually sank 27% year-on-year to $10.3 billion.

“Even though 2013 turned out to be a record year, net sales of investment funds had a much more difficult final month of the year compared to previous months, with December showing the largest net outflows in a single month for five years,” notes Lieven Debruyne, HKIFA chairman.

“This slowdown, however, comes on the back of two years of extremely strong growth in mutual fund sales.”

Interest in bond funds waned significantly in 2013, notably in the second half. Gross sales of bond funds dropped 34% year-on-year to $24.4 billion and the segment saw net outflows of $3.6 billion – in contrast to $13.5 billion of net inflows in 2012. The last time bond funds saw net annual outflows in Hong Kong was 2007.

The worst-hit categories were global, high-yield and emerging market bonds funds with outflows of $2.3 billion, $980 million and $959 million, respectively.

Only Asian bond funds and European bond funds managed to attract net inflows, at $844 million ad $23 million, respectively.

But investors warmed to equity funds, especially in the second half. Gross sales of reached $22.9 billion and the segment attracted $4.6 billion in net inflows, reversing the trend from 2012 when it recorded net outflows of $1.2 billion.

International equity funds led in both gross sales ($5 billion) and net inflows ($2.6 billion). Asia ex-Japan funds ranked second in gross sales with $4.2 billion, while it attracted $889 million in net inflows.

Developed market equity funds also gained traction, with products exposed to Japan, Europe and North America garnering gross sales of $3.8 billion in total. European equity funds pulled in $1.2 billion in net inflows.

Balanced funds, meanwhile, enjoyed a standout year with gross sales reaching $21.3 billion. While inflows slowed as the year progressed, they still outshone both equity and bond funds with a total of $9.4 billion in net sales.

“Demand for yield in the current low interest-rate environment helped sales of balanced funds particularly, as many of these funds provide a regular payout,” noted Debruyne. “Balanced funds recorded the highest net sales over 2013 of any category.”

Bruno Lee, HKIFA sub-committee chairman, adds that while investors should be mindful of market uncertainty caused by Federal Reserve tapering of its quantitative easing programme, the current low-rate environment and global economic recovery “should provide good opportunity for asset rebalancing and long-term positioning”.