Fund Managers’ Outlook Overweight On Equities

19 September 2011

Fund Managers’ Outlook Overweight On Equities Despite Market Volatility

Following a cautious second quarter when investors focused on bonds, HSBC’s Fund Managers Survey revealed fund managers are highlighting opportunities in the equity markets over the next three months. Despite the recent sell-off after the US credit downgrade, 63% of fund managers polled are bullish towards equities in the third quarter of 2011. Most fund managers also hold a bullish view towards Asian (83%) and high-yield/emerging market bonds (71%) and those with overweight views towards Greater China equities more than doubled (57%) on the previous quarter. As the European debt crisis dampened their outlook on growth, 83% of fund managers became bearish on European bonds and half (50%) are bearish on European equities.
3Q 2011 asset allocation strategy Underweight Neutral Overweight
Equities 25% (11%) 13% (44%) 63% (44%)
Bonds 57% (38%) 43% (50%) 0% (13%)
Cash 43% (38%) 57% (50%) 0% (13%)

Note: Figures in brackets indicate fund managers’ asset allocation strategy in 2Q11.

Glen Tonks, Head of Wealth, at HSBC New Zealand, says: “Current market volatility has created attractive buying opportunities for New Zealand’s long term investors. While there is continued uncertainty around growth in the US, corporate earnings forecasts remain positive. Fund managers are looking toward the emerging markets for opportunities and are focusing on Greater China equities as market expectations of the end of the Mainland’s tightening cycle continue.”

Given more favourable economic conditions in Asian and emerging countries, as well as healthy corporate earnings, fund managers recorded bullish views towards Asian and emerging markets/high yield bonds. Eighty-three per cent of fund managers recorded overweight views towards Asian bonds (vs 14% in 2Q11) with 71% being bullish towards emerging markets/high-yield bonds (vs 25% in 2Q11). The number of fund managers with overweight views towards Greater China equities more than doubled (57% in 3Q11 vs 25% in 2Q11), with expectations of monetary tightening and inflationary hikes drawing to an end.

Amidst heightened global economic uncertainty at the time of the study, half of all fund managers recorded underweight views towards European equities (50% in 3Q11 vs 11% in 2Q11), 83% were bearish towards European bonds (vs 57% in 2Q11) and 71% were bearish towards US dollar bonds (71% in 3Q11 vs 25% in 2Q11).

HSBC’s quarterly Fund Managers’ Survey analysed 12 of the world’s leading fund management houses1 in July and August 2011 on the basis of funds under management (FUM), asset allocation views and global money flows. The net money flow2 estimates are derived from movements in FUM versus index movements in the equivalent class. At the end of 2Q11, polled fund managers reported aggregated FUM of US$4.4 trillion representing approximately 17% of the estimated total global FUM3.

2Q11 global asset flows
As investors searched for yield in a low interest environment, the second quarter of 2011 was marked by continued inflows into bond funds especially into global and emerging markets/high yield bonds. Equity funds posted outflows as investors remained cautious on the back of concerns about the sustainability of the global recovery and developed market debt issues.

Funds under management (FUM) rose by US$51 billion at the end of 2Q11, up 1.17% from 1Q11, led by the US$62 billion increase in bond funds. Equity funds and money market funds dropped by US$14.3 billion and US$12.6 billion respectively. North America remained the top region for both equity and bond investments in 2Q11 and Asia Pacific remained the second largest region for equity investment.

Net fund flows (as a percentage of FUM), which are derived by subtracting market growth from FUM growth across various asset classes during 2Q11, were:
Asset class End 2Q11 End 1Q11
North America equities + 1.7% + 0.4%
Europe including UK equities + 1.2% - 3.0%
Asia-Pacific ex Japan equities + 0.2% - 4.8%
Japan equities - 0.2% + 1.0%
Emerging markets equities - 1.4% - 3.9%
Global equities - 6.8% - 4.7%

Asset class End 2Q11 End 1Q11
Greater China equities - 7.6% - 2.7%
Global bonds + 7.7% + 5.2%
High yield/ Emerging market bonds + 6.1% + 4.4%
Europe including UK bonds - 2.2% + 1.4%
US bonds - 2.4% + 0.1%

2Q11 HSBC Fund Flow Tracker
The HSBC Fund Flow Tracker, which represents the net value of money flows since 3Q06, showed that equity funds have continued to register net outflows over the last year. At the end of 2Q11, equity funds posted accumulative net outflows of US$176 billion compared to net outflows of US$153.6 billion in the previous quarter.

•Cumulative net inflows to Greater China equities declined 19.3 per cent to US$7.1 billion in 2Q11 (vs US$8.8bn in 1Q11)
•Cumulative net inflows to Emerging Markets equities declined 3 per cent to US$28.7 billion in 2Q11 (vs US$29.6 billion in 1Q11)
•Cumulative net inflows to Asia-Pacific ex-Japan equities increased slightly to US$9.7 from US$9.5 billion last quarter
•North American equities registered cumulative outflows of US$5.7 billion compared to US$12.8 billion in the previous quarter

In a continued low interest rate environment, cumulative net inflows to bond funds increased to US$350.7 billion in 2Q11, up 6.7 per cent from 1Q11, as investors search for yield.

ENDS

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