Bangkok--22 Apr--HSBC A survey by HSBC of the bank’s panel of ten global fund management houses revealed a significant shift in sentiment amongst fund managers in favour of cash over equities and bond investment sectors in the first quarter of 2008. Sixty-two per cent of the fund managers surveyed said they held an overweight view towards cash. This compared with just 25% of the sample holding the same view in the fourth quarter of last year. Fund managers turned bearish towards equities over the same period as 38% took an underweight view of this investment sector. This compares with no respondent in the sample holding an underweight view towards equities in 4Q07. Within the equities sector, fund managers in the sample were unanimous with 100% citing an overweight view towards Asia Pacific ex Japan equities (This was up from 87% holding the same view in 4Q07). The next most popular sector, within equity investments by geography, was Greater China at 75% (87%) with an overweight view. Regarding bond investments, half of the sample remained underweight in 1Q08, compared to 62% in 4Q07 and 37% were neutral in the first quarter of this year versus a 25% in the final quarter of last year. Bruno Lee, HSBC’s Head of Wealth Management for Personal Financial Services, Asia Pacific, noted: “These views reflect the continued volatile conditions in global stock markets as well as changing investor sentiment, resulting in a shift to more cautious and focused investment strategies. Investors are tending to keep their liquidity intact, in the event that the market offers more compelling investment opportunities, while at the same time trying to balance their current equity positions by skewing investments to Asia and other emerging markets where there is still scope for growth.” Fund flow survey analysis: fourth quarter 2007 highlights As well as seeking fund houses’ views towards investment sectors, HSBC also conducts a quarterly survey among its ten partner fund houses1 with a view to obtaining a better understanding of the global liquidity flows and the dynamics of global asset allocation. Net fund flows2 are calculated by taking away the impact of market movements to derive a picture of investor activity in the global investment scene. HSBC undertakes this survey to guide customers in making informed investment choices. The HSBC survey of fund flows indicates total funds under management of the fund houses in the panel increased by US$94 billion or 2.0%, from 3Q07 to 4Q07. In the last quarter of 2007, funds continued to move to Asia with Asia Pacific ex Japan equities reporting a net fund inflow of 14.3% as investors remained confident about growth prospects in the region over the prospects for equities of developed economies. This inflow reflects the results of the fund house survey of sentiment towards investment classes and geographies in the survey results given above. Compared to performance in 3Q07, Japan equities and Europe equities experienced slight net fund inflows of 1.9% and 0.4%, respectively in the fourth quarter. While the Japanese equities market recorded the worst index performance in this survey, with MSCI Japan down by 8.9% in 4Q07, this market showed a positive inflow of funds versus net fund outflows in the previous two quarters. Overall, the biggest net outflows in the fourth quarter of 2007 were recorded by Global Emerging Markets (ex emerging Asia) equities (-7.2%), followed by US equities (-2.0%) and Global equities (-1.8%), owing to fragile market sentiment triggered by concerns regarding potential contagion from US sub-prime developments and the growing global credit crunch. Bond funds were a natural choice for investors seeking a safe haven as they shifted from equities as a result of the significant volatility in the global stock markets. The bond sectors that benefited were Global, Europe and High Yield/Emerging Markets, with net fund inflows of 5.4%, 2.4% and 4.4%, respectively. While the US bond market registered the highest growth among the different bond markets with a return of 3% in 4Q07, due to the easing of monetary policy by the US Federal Reserve, it experienced a net fund outflow of 1.4%. Mr Lee said: “In the last quarter of 2007, as global investors locked in gains for the year, they took a more conservative position. Fund managers parked funds in money market funds which for the quarter made the biggest contribution of US$77 billion to total funds under management growth. A flight to quality was also evident as investors diversified to bond funds.” Fund flow survey analysis: full year highlights 2007 Total funds under management of the 10 partner fund houses grew in the whole of 2007 by 16.2% to US$4.85 trillion from end of 2006 to end of 2007. Equity funds comprised the largest portion of funds under management and also contributed most to the fund growth — an additional US$240 billion to the total portfolio. Among the equity funds, net inflows recorded were Global, Europe, Japan, Asia-Pacific ex-Japan and Global Emerging Markets (ex emerging Asia) while US equities experienced negative fund flows. In particular, equity fund investments inflows over the whole year were skewed towards Asia Pacific ex Japan and Global Emerging Markets, resulting in total net inflows of 66.5% and 37.4%, respectively. In the bond markets, positive fund flows to all regions including Global bonds, US bonds, Europe and UK bonds and High Yield bonds were recorded during the whole of the year. Mr Lee said: “2007 was about optimising returns from the booming equities markets around the world, with special focus on Asia, the emerging markets and Greater China given the continued weakness in the US market. The sharp volatility in global equities markets in late 2007, which continued as a feature of market sentiment in the first quarter of 2008, resulted in investors rebalancing their portfolios in favour of bonds and cash. While investors reduced their overall exposure to equities, they skewed their weightings within the equity sector in favour of Asia-Pacific ex-Japan, Greater China and the Emerging Markets, where there was still scope for growth.” Mr Lee added that for Hong Kong investors, given the near negative interest rate conditions in the territory, there still remains investment options available depending on individual risk appetite. “This is a good time to review and rebalance investment portfolios. For the conservative investor, there is a range of lower risk products with or without capital guaranteed features to choose from. The balanced investor can consider high-quality bond funds combined with global balanced funds. If you are an aggressive player willing to take more risk, then as the survey reflects, equity funds with a bias towards commodity, Asia and emerging markets remain possibilities,” he said. Media enquiries to Varanandha Sutthapreeda on 0-2614-4609 or Savittree Muadmuang on 0-2614-4606. Notes to editors: 1. HSBC in Thailand HSBC was established as the first commercial bank in Thailand in 1888. With access to global expertise and enriched local knowledge, HSBC in Thailand provides a full range of financial services including corporate and institutional banking, global markets, securities services, trade finance, payment and cash management services to corporate customers; personal financial services and credit cards to a growing retail customer base in Thailand. HSBC is globally recognised for its high service standards, ethical practices and full commitment to corporate social responsibilities to benefit the local economy. 2. HSBC Holdings plc or the HSBC Group Headquartered in London, the HSBC Group is one of the largest banking and financial services organisations in the world. The Group’s international network comprises around 10,000 offices in 83 countries and territories in Europe, the Asia-Pacific region, the Americas, the Middle East and Africa, serves over 128 million customers and has assets of US$2,534 billion as at 31 December 2007. The Hongkong and Shanghai Banking Corporation Limited is the founding and principal member of the HSBC Group. Notes to editors: 1. Participating fund managers The ten participating fund managers in the survey are: AllianceBernstein Investments, Allianz Global Investors, Baring Asset Management, Blackrock Merrill Lynch Investment Managers, Fidelity Investment Management (Hong Kong) Limited, Franklin Templeton Investments, HSBC Investments, INVESCO Asset Management, JF Asset Management and Schroders. The aggregated fund under management (FUM) of the above fund managers was US$4.85 trillion as at the end of 4Q07. 2. Net fund flows Net fund flows are derived by subtracting market growth from FUM growth during 4Q07.