Consistent investor optimism continues in Hong Kong

18 October 2013   Category: News, Asia, Hong Kong   By Asia Asset Management

J.P. Morgan Asset Management (JPMAM) has announced the results of its 29th quarterly survey conducted for the J.P. Morgan Investor Confidence Index (JPMICI) in Hong Kong.  The index is designed to reflect local investor sentiment towards the Hong Kong market over the next six months. The latest results show that investor confidence remained stable at the end of 3Q2013 with an index rating of 116, the same as last quarter in June, and similar to March’s score of 117. Investor outlook has been very consistent so far in 2013.
Within this overall stability there are just slight movements in the individual Sub-Index ratings. The Hang Seng Sub-Index moves up six points to 129, whilst the Value of Investment Portfolio Sub-Index gains four points to 123 and the Hong Kong Economic Environment Sub-Index is up one point to 117. The Global Economic Environment Sub-Index again shows a relatively poor performance with a drop in its rating from 108 to 104, just above the neutral level.
Henry Tong, vice president of intermediary business at JPMAM, commented: “It is reassuring to see another stable quarter in terms of investor sentiment, especially when compared to this time last summer. Confidence remains cautiously optimistic, certainly closer to home with the Hong Kong-related measures all performing relatively strongly. The Hang Seng Sub-Index again enjoys the highest rating, with 73% of investors feeling that the Hang Seng Index itself will be trading above the current 23,000 points level in the next six months. This optimism will also be generated from the 46% of investors who reported their investments returning a profit in 3Q2013, with less than one in ten, (7%) seeing a negative return in this period.
“As previously, the benefits of investment diversification in a volatile market are reflected in the survey response. Investors are maintaining balanced portfolios and are also considering the longer-term outlook. Most investors are undertaking such a strategy with nine in ten, (91%) remaining neutral in terms of their fixed income allocation, and eight in ten, (83%) in terms of cash. There is more overweight in equities, (by 15% of investors), with Hong Kong the main beneficiary given that overseas markets are still being treated with some caution.
“It is the global situation which is still causing the most concern. The Global Economic Environment Sub-Index has been the lowest rated Confidence Index for around three years and this will more than likely continue in the medium term at least. Europe (62%) and the US (60%) are currently viewed as the markets with the highest risk. The uncertainty towards the US market is reflected in the split over when investors perceive the tapering of quantitative easing (QE) will begin, with each quarter next year being cited by around one in five of investors who perceive the tapering will begin after 2013 as the start date.
“The postponement of QE tapering has had an impact on investors’ current strategies, with 29% saying it has affected their plans. This compares to the 42% of investors who are concerned with fluctuating commodity prices and 39% who are concerned with a slowdown in mainland China. Despite this latter concern, China is still viewed as the market with the highest potential for growth in the near term (cited by 81%).”
Grace Tam, global market strategist for JPMAM, added: “China is attractive to Hong Kong investors, mainly because economic activity has been picking up again in recent months after Beijing pledged to keep growth of at least 7%. Regarding the global outlook, the US is starting to enjoy a more measured recovery and developed markets, in general, do have better economic and earnings growth momentum in the short term compared to emerging markets. In particular, corporate fundamentals, including record high profits and lower leverage and rich cash flows, point to a healthier corporate landscape in the US, which has been supporting a strong rally in US equities year-to-date.
“Within the region, we have a preference for North Asia, as generally their economies are more export-oriented with current account surpluses. Markets with well-established links to developed countries are well positioned for a recovery in the global economy. Inflows to these markets have already been seen, in contrast to South Asia.
“While the QE tapering concerns accompanied by rising US yields in recent months appear to have tapered off the ‘search for income’ behaviour, historical data suggest that some income-related asset classes could still have decent performance. Within high dividend equities, emerging markets and Asia dividend stocks will have an opportunity to outperform due to their heavier weighting in non-defensive cyclicals within the high dividend universe, which tend to benefit more from a strengthening US economy.”
The J.P. Morgan Investor Confidence Index score is derived from asking survey respondents six questions to clarify the confidence of investors about (Q1) the Hang Seng Index, (Q2) HK economic environment, (Q3) HK investment environment and atmosphere, (Q4) global economic environment, (Q5) the possibility of personal asset appreciation, and (Q6) the possibility of increasing their investment. These six questions form the sub-indices of the J.P. Morgan Investor Confidence Index. The index and all sub-indices have a range between zero and 200. A number greater than 100 represents a positive outlook and vice versa.
Cimigo, an independent market research company, was commissioned to conduct the survey on behalf of JPMAM.  The survey was developed by interviewing a random sampling of 528 retail investors (N = 528) aged between 30 and 60 who have at least 5 years of continuous investment experience with liquid assets in excess of HK$100,000 (US$12,896). The survey was conducted during September 2013.