Chasing yield: Hong Kong mutual fund sales record best quarter in 3 years as investors pile into bond products

Hong Kong mutual fund sales recorded their best quarter in three years, as retail investors snapped up bond funds in their pursuit of elevated yields, according to an industry body.

Hong Kong retail funds recorded net inflows of US$3.8 billion in the three months to March, the most since attracting US$4.6 billion in the same period in 2021, and a sharp reversal from the US$2.1 billion net outflows seen in the previous quarter, according to data from the Hong Kong Investment Funds Association (HKIFA), which represents the local units of international fund houses.

Fixed-income funds were the top draw for investors, pulling in US$4.1 billion of inflows during the period, with gross sales more than doubling from the previous quarter, the data showed. Most of the new capital was ploughed into global bond funds and North American bond funds.

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Money market funds, which invest in cash or cash-like instruments, attracted US$632 million of net inflows.

Retail investors in Hong Kong were drawn to fixed-income funds in the first quarter. Photo: Eugene Lee alt=Retail investors in Hong Kong were drawn to fixed-income funds in the first quarter. Photo: Eugene Lee>

"The quest for income continues to be top of mind for investors," said Sally Wong, CEO of HKIFA. Against the backdrop of market volatility, those with greater risk appetite are also increasingly exploring non-investment grade fixed-income assets, such as high-yield and emerging-market bonds, for potentially higher returns, she added.

Investors have been snapping up bond products this year as they seek to lock in elevated yields ahead of potential interest-rate cuts by major central banks. The yield premium as per a Bloomberg index tracking both investment-grade and high-yield global corporate bonds tightened to a three-year low during the first quarter.

Meanwhile, equity funds and mixed-asset funds saw net outflows for the eighth consecutive quarter, losing US$648 million and US$502 million, respectively, during the first quarter.

China and Greater China equity funds were among those that suffered the biggest outflows, totalling some US$311 million, according to HKIFA.

Japanese and global equity funds were the only two equity-fund categories with positive net inflows, attracting US$129 million and US$57.8 million, respectively.

The outflows mirrored the lacklustre performance of the Chinese and Hong Kong stock markets last quarter. The CSI 300 Index, which tracks the biggest companies listed in Shanghai and Shenzhen, climbed 3 per cent as sentiment remained cautious amid a lack of confidence and forceful stimulus. The Hang Seng Index in Hong Kong lost 3 per cent, extending an unprecedented four-year slump.

In contrast, the Nikkei 225 Index in Japan rallied nearly 21 per cent to a record high, while the S&P 500 Index in the US jumped more than 10 per cent buoyed by a rally in mega-cap companies.

However, the recent rebound in Chinese equities have offered some relief to investors and helped in drawing funds, according to Nelson Chow, chairman of HKIFA.

The MSCI China Index tracking over 700 companies listed at home and abroad has risen 12.8 per cent so far this quarter, buoyed by Beijing's policy support and global investors rebalancing their portfolios as they scour the market for better value.

"Hong Kong and mainland stocks are drawing attention in the wake of the recent rebound and attractive valuations," said Chow, who is also a managing director of the Hong Kong unit of AllianceBernstein.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.

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