Hong Kong investors’ confidence drops nearly 10%
Market turbulence brings investors back to reality, Schroders survey revealed
Only 36% of Hong Kong investors are more confident about investment opportunities in 2015, down from last year’s 45%, the recent Schroders Global Investment Trend Survey 2015 revealed. Expectations on risk/reward are modest – 72% of the 500 Hong Kong residents surveyed plan to invest in low and medium risk assets, and 93% of all respondents expect to make a profit with an overall return of about 8%, which may not be easy to achieve given choppy markets and low, patchy growth around the world.
Hong Kong is the only market amongst the nine Asia markets surveyed that expect a single digit return on their investment this year. Part of the reason for this could be that 88% of the respondents only achieved an average 7% investment return last year, which was one of the lowest in the region.
Despite this, 80% of Hong Kong investors said they will continue to rely on their own judgement to make investment decisions, and of whom 44% will change their investment strategy in response to current market conditions while 36% plan to invest in broadly the same asset classes as previous years. Only 16% said they would seek professional investment advice.
Asia remains the most favoured investment region amongst Hong Kong investors, as 75% of them think it will deliver the best returns this year, 3% less than in 2014. North American is the second most favoured region, with more than 31% of investors think it will perform well, 4% more than last year.
While only 21% of Hong Kong investors prefer to invest in Europe, Schroders believes the recent strong economic data and corporate earnings shows this region may be the better investment opportunity. The drop in oil prices, weaker euro and lower funding costs are key factors that will potentially help Eurozone corporates achieve double-digit earnings growth in 2015.
Grace Ho, Head of Marketing, Asia, Schroders, said: “Whilst some Hong Kong investors may have made a small fortune from the Hong Kong stock market rally in April, the rally was not supported by any fundamentals and we are already seeing the affects of this. There have been more peaks and troughs in the market, and frequent news reports of huge investment losses from speculative bets. As such, investors may consider using professional advice to help them diversify investment risks and generate potential sustainable, long-term returns.”
In fact, Hong Kong investors are thinking more long-term and are realising the importance of sustainable income, and this is where professional investment advice can provide value.
Nearly all (94%) survey respondents said they plan to invest in assets that generate a regular income. The top five reasons for this are bank interest rates are too low (38%), long-term re-investment strategy (32%), preference for dividend paying companies over growth investing (29%), rising cost of living (26%), and economic and political instability (24%).
Volatility of markets since the financial crisis may have influenced investors’ search for income. The Schroders survey showed that 26% of Hong Kong investors plan to invest directly in stocks while a total of 34% plan to invest in multi asset funds, equity funds and bond funds to generate regular income in the next 12 months.
It also revealed that 33% of Hong Kong investors plan to use the income generated to supplement their salary, 29% will reinvest the income to further grow their investment portfolio, and 14% will contribute the income to their retirement savings.
Grace Ho continued, “Those planning to go at it alone may be too focused on their home region or the asset classes they are most familiar with, and are not maximising their investment capital while at the same time exposing themselves to unnecessary risk. Some professional investment advice can give investors a global perspective and help them pick and choose assets around the world that can help achieve their investment target and provide sustainable income.”
Ample liquidity from quantitative easing actions by the European Central Bank and the Bank of Japan have been driving growth in these markets, as evident by the better-than-expected economic data and uptick in business activities. The potential interest rate hike in the U.S. means the economy is getting back on track, which also means trouble for some emerging markets. However, there are pockets of strengths in emerging markets such as energy importers (benefiting from lower oil prices) and manufacturers who stand to benefit from better growth in Europe and the U.S. Emerging markets with strong balance sheets and low external financing, such as India, are markets that are worth looking at.
Given the patches of growth and opportunities spread across the globe, investors should consider adopting a multi asset income strategy to achieve their investment targets.
A multi asset approach aims to achieve similar yields as direct investments in high yield bonds and dividend stocks, but by adding investments in REITs, global equities and fixed income, and emerging market debt, the strategy provides wider diversification and lower volatility while at the same time avoid yield traps that are present in fixed income and equities.
Grace Ho concludes, “A professionally managed multi asset strategy focuses on higher quality securities that will grow and sustain income returns. The approach allows for active asset allocation and utilisation of tools and methods, such as currency management, to maximise potential returns for investors. At Schroders, we expect the appetite for income will only grow in a low growth and low interest rate environment. Sustainable income investing and the flexibility that it brings will ensure it remains an important source of potential returns for years to come.”
Schroders commissioned Research Plus Ltd to conduct an independent survey of 20,706 retail investors in 28 countries around the world who intend to invest at least €10,000 (about HK$89,000) during the next 12 months. The survey was conducted online between 3 and 27 March 2015 and these individuals represent the views of investors in each country involved in the survey. A total of 500 retail investors in Hong Kong participated in the survey, with a near equal split between male and female. The average age of the Hong Kong respondents was 37 years old.
The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.