Liberalisations stir interest in Greater China equities

Fund managers in Hong Kong are growing upbeat on Greater China equities on the back of the pending HK-Shanghai Stock Connect programme and additional RQFII quotas being handed out.

In all, 39% of respondents to a Hong Kong Investment Funds Association survey* were overweight Greater China equities last month, more than double the 17% from its last survey in April. Those with underweight positions declined, but only by two percentage points to 15%.

Sentiment also improved towards Japan, with 73% of managers now overweight, a healthy surge from 47% previously. There was a marginal increase in managers underweight Japan, by 1 percentage point to 7%. Those taking a neutral stance on the nation more than halved to 20%, from 47%.

Emerging markets also saw an increase in allocations, with a third of respondents overweight compared with 0% in April. That bullishness was reflected in underweight allocations too, which plunged from 60% to 13%.

Europe fell out of favour, consistent with findings from this month's Bank of America Merrill Lynch fund manager survey, with 50% of respondents reporting an overweight position for July, down from 73% in April. Those holding an underweight position on Europe increasing to 21%, from 7%.

But overall, managers in Hong Kong are now a little less optimistic on equities than they were in April, although they still remain bullish. While 73% were overweight in July, that was down from 80% in April. The number of respondents holding a neutral stance more than doubled to 27%, from 13% previously, although no manager was underweight, compared to 7% in April.

Bonds gained favour, with the number of managers underweighting them down 20 percentage points in July to 40%, from 60% in April. However, that improvement wasn’t mirrored in overweight positions, which remained flat.

Within fixed income, managers turned positive on emerging market bonds, with 47% of respondents overweight, up from 20% in April.

European bonds also attracted inflows, with 31% of managers reporting overweight positions, up from 15% in April. However, 31% were underweight, a slight decrease of eight points from April.

Managers moved out of high-yield bonds, with those reporting overweight positions declining to 53%, from 66% in April, and those reporting underweight positions increasing to 20% from 7%.

They also moved out of US bonds, with the number overweight sinking by two-thirds to 7%, while underweight positions rose from 43% to 50%.

At the same time respondents moved out of cash. Managers holding a positive view declined to 14%, from 21%, and those underweighting the asset class increased to 50%, from 36%.

* A total of 15 fund management companies with combined assets under management of around $9.4 trillion responded to the HKIFA survey.