Asian Investors Rebalance Portfolios to Combat Uncertainties
July 14, 2020 — Singapore
Investors seek safety in fixed income, but there are opportunities in other segments
Demand for fixed-income products, especially global and Asian fixed income, is expected to continue to hold up in most markets this year due to the uncertainty brought by the coronavirus outbreak. However, opportunities are present in other product segments.
The first quarter of 2020 saw heavy losses in the assets of most Asian markets, many of which fell by more than 10% amid the surge in COVID-19 cases globally and the drop in oil price. China and Korea, however, bucked the overall trend and grew 12.1% and 1.4%, respectively. Despite all markets experiencing market depreciation, China’s growth alone more than offset the decline in assets of other Asian markets, with net new inflows of US$266.4 billion.
As most global market indices declined by more than 20% in the first quarter, equity funds’ marketshare shrank from 23.7% in 2019 to 20.0% in March 2020. Meanwhile, bond and money market funds’ marketshare increased by 1.0 and 3.7 percentage points, respectively, as investors sought safety in such funds.
Cerulli’s research has uncovered other interesting trends in the first quarter of 2020:
- Despite the potential demand for fixed income, asset managers in Hong Kong, Singapore, Taiwan, India, and Korea surveyed by Cerulli named equity strategies as the top broad strategies that they would like to promote to distributors this year.
- Thematic funds—particularly technology-related themes—are also drawing attention from investors in the region.
- Certain exchange-traded funds (ETFs) have received a boost from investors buying at dips. ETFs continue to be popular in Australia and Korea.
- Online platforms have gained in popularity, but banks remain the dominant channel in most markets, and are strengthening their digital presence to meet clients’ expectations.
- Pension withdrawals in some markets (Korea and Australia) could impact the asset pool. In other markets (Singapore and Hong Kong), measures to increase voluntary contributions could have the opposite effect. Retirement planning remains a key theme across the region.
"Investors’ shifting risk appetites and product preferences need to be kept in mind amid the coronavirus outbreak,” said Ken Yap, managing director, Asia, with Cerulli Associates. “Managers in our survey have ranked regular income and capital protection as the most important product features sought by retail investors, while distributors have rated products with limited volatility at the top. Ultimately, though, consistent fund performance will be essential for managers to retain investor confidence.”