Fund managers start to favour China

Global fund managers are most optimistic about Greater China equities with 56% holding an overweight view in the first quarter of 2012 as they look to move away from cash to equities and bonds this quarter, according to HSBC’s latest Fund Managers’ Survey.

Monday, April 2nd 2012, 7:05AM

Over a tenth of fund managers shifted from neutral to overweight views towards Greater China equities in the first quarter, one of the worst performing asset classes last year that started to turn around in in the last quarter of 2011.

MSCI China and Hang Seng Index fell 18.2% and 17.3% in 2011, versus a 2.1% gain for Standard & Poor’s 500 in the US and a 10.5% drop for MSCI Europe. The performance reversed in the last quarter as Chinese equities recovered by 8.1%.

“Greater China equities are currently trading at a price-to-earnings ratio of nearly 10 times. With an attractive valuation, Greater China equities may offer potential wealth opportunities and diversification for New Zealand growth orientated investors. China’s recent monetary easing measures such as cutting the reserve ratio requirement also improved market sentiment," HSBC head of wealth Glen Tonks says.

As equity markets rebound, fund managers are less bearish on equities with 50% and 30% of respondents holding neutral and overweight views, respectively (vs 20% and 30% in 4Q 2011). Only one-fifth (20%) of respondents hold an underweight view in 1Q 2012, dropping significantly from 50% in the previous quarter. Apart from Greater China equities, an increasing number of fund managers favour emerging markets equities (55%) and Asia Pacific ex Japan equities (40%) this quarter, compared with 27% and 20% respectively in 4Q 2011.

Over four in 10 (44%) fund managers favour bonds as an asset class (vs. 22% in 4Q 2011). As many companies have solid fundamentals and are supported by relatively strong Asian economies, the majority of respondents are bullish on Asian bonds (88%) and global emerging markets/high yield bonds (78%) while bearish on European bonds (89%).

More fund managers are underweight towards cash (44% this quarter, compared with 22% in 4Q 2011).

“While the survey shows a continued and increasing preference for bonds as investors look for yield in a prolonged low interest environment, fund managers are looking at riskier assets again on the back of improving economies, resilient corporate earnings and attractive valuations,” says Mr Tonks.

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