Retail investors in Hong Kong are hesitant to move out of cash even as they grow more optimistic about the economic outlook, a recent industry survey found.
Local investors would only consider reallocating from cash and deposits into investment products when interest rates come down to 2.5 per cent or below, according to the survey by the Hong Kong Investment Funds Association (HKIFA), which represents the local units of international fund houses. The city’s key lending rate currently stands at 5.75 per cent, the highest level since December 2007.
More than half of the respondents prioritised “regular collection of interest” as their top investment goal, followed by capital growth and outpacing inflation. Meanwhile 55 per cent of the retail investors surveyed expressed a positive outlook for the global economy over the next 12 months, and 52 per cent were optimistic about the economic prospects for Hong Kong and mainland China.
“Many still seem reluctant to allocate more cash into investments although they foresee a favourable economic outlook,” said Nelson Chow, co-chair of the HKIFA’s unit trust subcommittee. “The sentiment is definitely still defensive at the moment for sure.”
Money market funds and fixed-income funds, which were the most popular products among retail investors in the first three months of the year thanks to their steady yields, are likely to have continued to account for more than half of total retail fund sales in the second quarter, he said.
The survey was conducted in May by NielsenIQ on behalf of the HKIFA, and involved the participation of 500 Hong Kong investors. These respondents, aged between 25 and 64, are either current or prospective retail fund investors, with an annual income exceeding HK$300,000 (US$38,426) and liquid assets surpassing HK$200,000.
The study found that local investors have a strong “home market bias” – 72 per cent of them were primarily interested in investing in the Hong Kong market in the next year while 63 per cent chose mainland China. Less than half of the respondents would pick North America or Japan.
“The valuation of the two markets is still relatively low, which could be part of the reason. Still, Hong Kong investors’ ‘home bias’ is remarkably higher than in other regions,” Chow said.
“It’s important to understand the global markets more to construct a balanced portfolio and lower the risks.”
Funds focused on China and Hong Kong equities are among the worst performers this year globally, with an average return of 3.4 to 5.9 per cent, said the HKIFA, citing Morningstar data. The top-performing fund categories, Europe, India, and Taiwan equities, returned 16.9 to 18.4 per cent.
Sector-wise, local investors are most drawn to artificial intelligence, healthcare, green or ESG-related industries and the banking and finance industry, the survey found.
