Bangkok--8 Jul--Master Mind Communications
Japan sees post-Abenomics uptick; Hong Kong bucks trend with negative sentiment
- Most investors in Asia and Canada surveys confident about the future, more so than in the U.S.
- Gap between sentiment and action as investors struggle with volatility and complexity
- Investors in developed Asia adopt a ‘barbell’ approach to investing, focusing on cash and stocks
- Asia investors’ unrealistic expectations of returns acting as barrier to good investment choices
- Investors holding very high levels of cash, despite negative real rates of return
The latest Manulife Investor Sentiment Index in Asia (Manulife ISI), based on 3,500 interviews across seven Asia markets,1 shows an upward trend in investor sentiment in Asia, tallying with similar findings in parallel Indexes for Manulife Canada and John Hancock, Manulife’s U.S. division. Sentiment was positive in all markets bar Hong Kong and rising in most — dramatically so in Japan, an apparent response to ‘Abenomics’, Prime Minister Shinzo Abe’s bold plan to boost the economy. The only territory showing negative sentiment was Hong Kong.
The Manulife ISI findings show a clear majority of investors in both Asia and Canada expect to be in an improved financial position two years from now, both up since their previous findings earlier this year. The respective figure for the U.S. was unchanged at around half.
“These Manulife ISI findings point to Asia investors warming to signs of recovery in the real economy, and that’s also reflected in our findings from North America. But many aren’t yet ready to invest further and most are holding on to too much cash, thereby effectively losing money,” said Robert A. Cook, President and CEO, Manulife Asia.
Despite the positive findings overall, there was weak linkage between sentiment and planned investment in Asia. For example, in Japan investors were positive about stocks but the number planning actual investments was lower than in China and Taiwan, where sentiment was lower.
The Manulife ISI also points to a ‘barbell’ approach to investing in developed Asia markets, with investors prioritizing cash and stocks. Overall, these two asset classes were the top two product types owned and the top two financial holdings in terms of investors’ assets (excluding primary residence).
The Manulife ISI also highlighted that Asia investors are holding a lot of cash. Forty percent of respondents’ non-primary resident assets was held in cash — more than double the next highest asset types, insurance and stocks.
The Manulife ISI indicates Asia investors expect unrealistically high returns. Half those surveyed expect average annual returns on stocks of around 20 percent — double average annual returns over the past 15 years. “Investors’ equity market expectations certainly seem to be on the high side,’’ said Ronald Chan, Head of Equity, Asia, Manulife Asset Management. ”Global markets, including in Asia Pacific, have become more volatile of late given the tapering of quantitative easing in the U.S. and concerns around China’s economic growth. Although the near-term direction of the broad markets will likely be dictated by macroeconomic announcements, fundamentals have improved year-on-year and there are abundant opportunities in the equity markets at the sector and stock level for investors.”
The positive response to ‘Abenomics’ evident in the Manulife ISI chimes with a new study, The outlook for Abenomics: Implications for financial markets, by Manulife Asset Management. The report suggests Abenomics is likely to succeed, albeit within a range of scenarios impacted by factors such as upcoming Upper House elections, a new consumption tax and US Federal Reserve actions.
Tor Indhavivadhana, CEO, Manulife Asset Management (Thailand) said: “Although bank deposits remain the highest asset holding for Thai investors, we believe that they have diversified into multiple asset classes for return benefits. Unlike the double-digit interest rate 20 years ago, investors need to seek investment alternatives to strengthen their portfolios. One key asset class is equities which can be invested directly into via the Stock Exchange of Thailand (SET) or indirectly through mutual funds such as equity funds, mixed-asset funds or foreign investment funds. Due to active promotion of mutual funds by asset management companies and the SET group, interest among investors has increased. The participation rate in mutual funds, in term of the number of unit-holder account, has grown from 1.48 million in 2007 to 3.55 million in 2012, an increase of 140 percent. In addition, the ratio of mutual fund unit-holder accounts to bank deposits accounts has gradually risen from 1.14 percent in 2002 to 4.33 percent in 2012. We believe this ratio will continue to grow more rapidly in the future.”
Manulife Investor Sentiment Index - Key findings:
Investor sentiment
- The overall Manulife ISI in Asia rose four points since the last Index results in March 2013 (+17 to +21), the biggest gains being in Japan, Indonesia and Taiwan. This was consistent with an upward trend in the Indexes in Canada (+31 to +35) and the U.S. (+24 to +26).
- The biggest increase by far was in Japan where Abenomics and perceptions of better market conditions drove sentiment up for all asset classes. In contrast, sentiment fell in Hong Kong, driven by declining sentiment towards stocks, mutual funds and, above all, property.
- Most investors in Asia and Canada expect to be better off in two years time, in both cases trending up. In Japan, despite overall higher sentiment, the respective figure rose by only five percent to just under a third of investors, still the lowest in Asia, while in Hong Kong it declined to barely half.
Intention to invest trails sentiment
- While more than two thirds of respondents had a positive or neutral sentiment towards global stocks, less than a quarter planned to invest in them more over the coming 12 months.
- The only asset class where sentiment correlated to planned investment was property, particularly in Indonesia, where property investment was a key driver of sentiment overall.
Barbell investing
- Asia investors in developed markets identified stocks as the asset they would most likely shift cash into, reinforcing a ‘barbell’ approach to investing in cash and stocks.
- When asked what could influence them to invest their cash, the top responses were ‘guaranteed returns’ (Indonesia and Malaysia) and ‘steady, modest returns’ (all other markets). Similarly, the top reason overall for not preferring other investment options was that they were too risky.
Unrealistic expectations
- Over half of Asia investors overall, and clear majorities in all markets bar Taiwan, expected double-figure annual returns on stocks, even though none of these markets has on average met investors’ expectations.
- Expectations were highest in Indonesia, where nearly nine in 10 respondents said they expected an average of 32 percent annual returns on property.
Attached to cash
- Investors in Singapore hold an average of 35 months personal income, one of the highest in Asia. Still, half of these respondents felt this was inadequate, and only five percent felt it was too high.
- Respondents indicated that only a fifth of their cash holdings was for day-to-day or unexpected expenses — the rest was intended for medium-long term goals.
- In most markets, the main reason for not investing in an alternative asset was worry about making the wrong investment decision.
1About the Manulife Investor Sentiment Index in Asia
Manulife’s Investor Sentiment Index (Manulife ISI) in Asia is a quarterly, proprietary survey measuring and tracking investors’ views across seven markets in the region on their attitudes towards key asset classes and investment vehicles.
Conducted in Hong Kong, China, Taiwan, Japan, Singapore, Malaysia and Indonesia, the research is based on 500 online interviews per market, except in Malaysia and Indonesia where it is conducted face-to-face. Respondents are middle class to affluent investors, aged 25 years and above who are the primary decision makers of financial matters in their household and currently have investment products.
The Manulife ISI is a long-established research series in North America. Manulife ISI has been measuring investor sentiment in Canada for the past 13 years, and extended this to its John Hancock operation in the U.S. in 2011 and Asia earlier this year. The Asia research was conducted between mid-April 2013 and May 2013 by TNS, a leading global research firm. Details on the Manulife Canada and John Hancock Indexes can be found at www.manulife.com and www.johnhancock.com.
About Manulife Financial
Manulife Financial is a leading Canada-based financial services group with principal operations in Asia, Canada and the United States. Clients look to Manulife for strong, reliable, trustworthy and forward-thinking solutions for their most significant financial decisions. Our international network of employees, agents and distribution partners offers financial protection and wealth management products and services to millions of clients. We also provide asset management services to institutional customers. Funds under management by Manulife Financial and its subsidiaries were C$555 billion (US$$547 billion) as at March 31, 2013. The Company operates as Manulife Financial in Canada and Asia and primarily as John Hancock in the United States. Manulife Financial Corporation trades as ‘MFC’ on the TSX, NYSE and PSE, and under ‘945’ on the SEHK. Manulife Financial can be found on the Internet at manulife.com.