Search for Safety and Returns in Asia as Market Readies for Recovery

January 27, 2021 — Singapore

Thematic, yield enhancement product ideas to be in the spotlight

Low-risk products emerged as the mainstay for most of 2020, with investors opting for safe, low-risk, and liquid assets, including money market funds (MMFs), as the coronavirus pandemic roiled global markets and soured investment sentiments, Cerulli’s research shows.

MMFs topped net new flows in markets such as Hong Kong, Singapore, Korea, and Taiwan, as per the latest data available for various markets. Korea led with net flows of US$43.3 billion between January and November, followed by Taiwan at US$7.1 billion.

China saw strong flows into balanced funds as well as equity funds between January and September. In contrast, most other markets saw net outflows from equity funds due to profit-booking, following the rebound in indices after the market mayhem in early 2020. As for the fixed-income category, India saw the next highest net flows to bond funds after China, as investors fled to the safety of higher quality corporate bond funds as well as banking and public sector undertaking funds. Bond funds formed the second-best category in terms of attracting net flows for markets such as China, Taiwan, and Singapore. On the other hand, Korea and Hong Kong saw net outflows from these funds.

Although investment sentiments have been revived to some extent, driven by COVID-19 vaccine developments and the U.S. election outcome, uncertainties and bouts of market volatility cannot be ruled out completely, as some countries grapple with new waves of infections. Against this backdrop, Asian investors’ search for safe ideas are expected to continue, along with their need for income-generating ideas. Investors could seek products that help enhance yields, such as Asia fixed income amid the easy monetary policies adopted by global central banks for economic revival, and the low-to-negative yields for developed market bonds. Asian high yield could also feature on product promotion plans for investors with better risk appetites.

Apart from Asian fixed income, thematic investments have increasingly come under focus, as distributors and managers seek to position long-term structural story ideas to investors who expect higher returns. Moreover, it is easier to pitch sector stories to investors. Among sector funds, technology and healthcare sector funds topped the net new flows chart between January and November. Amid the COVID-19 pandemic, long-term structural themes or mega trends such as technological innovation, healthcare, and sustainable investing have gained momentum.

While the industry is focusing on thematic investments, investors’ tendencies need to be noted as they tend to move away from sectoral investments once they have reaped in returns. “Sectoral funds are often used as short-term bets by investors, and hence, thematic investing could be prone to market risks in the short run due to investors’ behavior, in the event of fluctuating trends in markets,” said Leena Dagade, associate director with Cerulli. “Therefore, investors need to be educated about the differences between cyclical sector plays and the opportunities offered by long-term structural themes arising from trends such as new fintech innovations, changing demographics, and changing consumer behavior.”

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Note to editors

These findings and more are from The Cerulli Edge―Asian Monthly Product Trends, January 2021 Issue.

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