According to figures from research firm Strategic Insight, an affiliate of The TRADE, bond funds in 2012 captured comparatively high inflows in Asia compared to equity funds, with implications for outbound investment from individual Asian markets.
While cross-border equity/mixed funds marketed in Hong Kong, Singapore and Taiwan suffered net redemptions totaling US$4 billion, cross-border bond products in the three markets garnered US$29 billion in net new money. High-yield, US$-denominated, global and emerging market fixed income were among the best-selling categories. When local products are added, total net flows to cross-border funds sold in the three markets reached approximately US$40 billion or 45% of aggregated net sales in Asia.
UCITS vehicles are widely accepted and enjoy a dominant position in core cross-border markets in Asia such as Hong Kong, Taiwan and Singapore. In 2012, the three markets saw combined net flows of $24 billion, which was slightly lower than in 2009 and 2010 but significantly higher than in 2011 when the yearly net flows were only $3 billion. "Many Asian investors, especially those in markets that don't have exchange controls, invest more outside their own country than they do inside, particularly Japan, Taiwan, Hong Kong and Singapore," said Blair Pickerell, head of Asia, Nikko Asset Management Hong Kong.
The move to bonds has refocused attention beyond the region, though according to Pickerell this is to some extent an anomaly. "Generally, Asian investors like to invest in Asia," he says. "They tend to invest outside their own country, but not outside the region." Over the past decade, he says, this has coincided with economic growth forecasts. "For the last couple of years, however, given the weak markets globally, bond funds have outsold equity funds in the region," he notes, Many of these funds are from Europe and the US. "When it comes to bond funds, people have generally been yield chasers," says Pickerell.