Global Fund Managers Turn Cautious in 4Q11

PRESS RELEASE

9 December 2011
For immediate release

Global Fund Managers Turn Cautious in 4Q11

***The majority of fund managers favour Asian bonds
and Global Emerging Markets/High Yield bonds***
***Over four in ten overweight on North American and Greater China equities***

Global fund managers are looking to move away from equities to bonds and cash in the last quarter of the year, according to HSBC’s latest Fund Managers’ Survey.

While 30% of respondents maintained a positive view towards equities in 4Q11 from 63% in the previous quarter, half of fund managers (50%) are taking an underweight view towards equities (vs 25% in 3Q11) in the midst of continued market volatility.

A fifth of fund managers (22%) are bullish on bonds (vs 0% in 3Q11) while over half (56% vs 43% in 3Q11) are taking a neutral view in 4Q11 as investors continue to look for yield in a low interest environment.

Over four in 10 fund managers (44% vs 0% in 3Q11) are overweight towards cash in 4Q11, reflecting weaker investor sentiment as the European debt crisis remains unresolved.

HSBC’s quarterly Fund Managers’ Survey analysed 13 of the world’s leading fund management houses1 in October and November 2011 based on funds under management (FUM), asset allocation views and global money flows.

4Q 2011 asset allocation strategy Underweight Neutral Overweight
Equities 50% (25%) 20% (13%) 30% (63%)
Bonds 22% (57%) 56% (43%) 22% (0%)
Cash 22% (43%) 33% (57%) 44% (0%)

Note: Figures in brackets indicate fund managers’ asset allocation strategy in 3Q11.

Glen Tonks, Head of Wealth, at HSBC New Zealand says: "With the ongoing market volatility primarily from the economic uncertainty in Europe, we're seeing a similar picture here in New Zealand as investors look to take risk off the table and move to investments that are perceived to be less risky. The key messages to investors is to focus on realistic wealth goals, take a long-term approach and of course a well diversified investment portfolio. There are opportunities in turbulent times and it is vital investors stay close to their investments with regular reviews."

Simon Williams, HSBC’s Group Head of Wealth Management, Retail Banking and Wealth Management, said: “The survey shows a significant shift in sentiment across global fund managers as prolonged uncertainty in Europe and insipid US prospects continue to hinder global economic growth. The end of the quarter will be marked by a flight to ‘safe havens’ and a more cautious view on risky assets as investors wait for things to turn in 2012.”

Over four in 10 global fund managers surveyed remain bullish on North American (45% vs 63% in 3Q11) and Greater China (44% vs 57% in 3Q11) equities and the majority hold positive views towards Global Emerging Markets/High Yield bonds (78%) and Asian bonds (63%). Thirty per cent of respondents turned bullish towards US Dollar bonds from 0% in the previous quarter.

Mr Williams added: “While fund managers have scaled back on their overweight views for all asset classes across various geographies, the survey also points to selective growth opportunities. With expectations of less stringent monetary policies in China, investors are staying positive on Greater China equities. On the back of still resilient corporate earnings and relatively undemanding valuations, the US equities markets could also offer potential gains. The continued strength of Asian economies and higher yields from Global emerging markets/high yield bonds compared to government bonds make these assets potentially appealing to investors.”

3Q11 global asset flows
The continued uncertainty in the global economy and market volatility resulted in a decrease in funds under management from both equity and bond funds in 3Q11. Funds under management across the global fund managers polled reached US$3.96 trillion2 at the end of 3Q11, down by US$440 billion or 10% from 2Q11. Equity funds accounted for 76% of the decline in FUM or around US$335 billion. FUM across balanced funds (US$42.7bn), money market funds (US$30.2bn) and bond funds (US$22.9bn) also fell significantly.

Net fund flows3 (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 3Q11 End 2Q11
Greater China equities +5.5% -7.6%
Asian bonds +4.7% +12.1%
Europe including UK equities +2.9% +1.2%
North American equities -2.7% +1.7%
Global equities -2.9% -6.8%
High yield/Emerging markets bonds -3.6% +6.1%
Europe including UK bonds -3.7% -2.2%
US bonds -3.9% -2.4%
Emerging markets equities -4.2% -1.4%
Japan equities -4.4% -0.2%
Global bonds -4.4% +7.7%
Asia-Pacific ex-Japan equities -6.4% +0.2%

Mr Williams said: “Customers who have been used to investing in a relatively more predictable environment where sentiment was less likely to cloud investment choices will find these times challenging.”

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