J.P. Morgan Asset Management (JPMAM) has announced the results of its 15th 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 findings show that the confidence of Hong Kong investors is broadly unchanged from its December level (from 129 in the last quarter versus 128 in the latest survey). This represents a stabilisation of investor confidence, building on the year-long rally since 1Q2009. Current sentiment seems steadfast to future recovery.
Two key components declined in the latest survey: the global economic environment and the amount of investment. The confidence index component referencing a better global economic environment fell over the quarter from 123 in 4Q2009 to 120 in 1Q2010. Although investors could have rising concerns regarding the mounting debt in European countries and Chinas central bank stimulus withdrawal, the main factor contributing to the overall dip in the confidence index is investors reluctance to increase investment. The confidence index component referring to the amount of investment saw only 34% of investors this quarter willing to increase investment over the next six months, compared to 50% for the previous quarter.
Leo Cheung, head of direct business, said: Clearly, there is a sense of growing confidence towards the domestic economy entering a sustainable recovery. Sentiment toward Hong Kongs economic environment and investment atmosphere increased four and three points respectively to 130 and 132 in 1Q2010. A higher level of retail consumption, more positive signs of job openings, and escalating property prices have all contributed to a sense of stability amongst Hong Kong investors. 59% of local investors believe current economic conditions are better, compared to 50% of those surveyed in December 2009. 41% of Hong Kong investors believe the local economic outlook is unclear, down from 57% last quarter. This is further emphasised by the 13% of local investors who stated that the Hong Kong economic outlook is clear and the economy has entered a recovery phase, up from 10% last quarter.
Property prices, on the other hand, have been a heated issue over the last three months, and the robust demand has driven price appreciation. 60% of investors believe property prices will increase in the next six months, yet 31% are wary of the fact that the property bubble is the biggest risk in 2010. Of those who expect property prices to be higher, 28% believe investment immigrants are the main drivers. Yet for some investors, the economic recovery presented opportunities to buy residential property in the 2Q2010 and 3Q2010. 13% intend to make a purchase, with 38% having a budget below HK$2 million and an equal percentage having a budget between HK$2 million (US$257,644) to HK$2.99 million. Furthermore, of those who are considering buying residential property in the next six months, there is a strong preference (64%) to hold properties for investment, while 52% stated that the property would be for living purposes.
Additionally, 61% of the investors think the Hang Seng Index will likely trade between 22,001 and 26,000 at the end of September 2010; while 3% think it may surpass 26,000. Investors expectation towards the stock market is moderately optimistic as more indications of renewed economic growth become apparent. While more than half (55%) of investors still think that the current stock market is volatile (6% less than in 4Q2009), a positive signal in the 18% of investors who believe the current Hong Kong stock market has entered a bull market phase. This reflects a gain from 10% last quarter.
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 sentiment, (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 0 and 200. A number greater than 100 represents a positive outlook and vice versa.
Stephen Chang, head of Asian fixed income team, added: As the turmoil in government-bond markets spreads from Greece to other advanced economies, the assessment of countries creditworthiness seems to be have been changing. In fact, the contrast between debt positions, and hence the recovery and growth prospects, of advanced and developing economies is likely to become the catalyst for a change in investors perceptions of emerging markets.
To put things in perspective, EM bonds and Asian credit only became a stand-alone asset class in the mid-1990s and still have a very low weighting in global asset allocation. We expect emerging market and Asian credit /currency markets will continue to improve their profile among international investors, shedding their image as one of the more volatile asset classes and garnering a greater and more stable following in the years to come. In our view, credit and currencies in this universe will enjoy the bulk of the asset re-balancing.
Cimigo, an independent market research company, was commissioned to conduct the survey on behalf of J.P. Morgan Asset Management. The survey was developed by interviewing a random sampling of 502 retail investors (N = 502) aged between 30 and 60 who have at least five years of continuous investment experience with liquid assets in excess of HKD100,000. The survey was completed at the end of March 2010.
J.P. Morgan Asset Management has been monitoring retail investor sentiment closely within the major markets of Europe for some time by conducting an Investor Confidence Survey. This first began in London in the early 1990’s with the publication of a UK Investor Confidence Index. In Asia, a similar Investor Confidence Index has been launched by the firm in Japan and Taiwan and has been well received by local investors.
