Asian selectors predict pullback from bonds in 2013

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HONG KONG: Next year will see Asian fund selectors allocate less money to bond funds and there is divided opinion on whether Asian fixed income can yet be defined as a stand-alone asset class.

Those are two of the main points expressed by delegates at the first ever Citywire Fund Selector Forum in Hong Kong, where the region's leading professional investors were quizzed on a number of major topics and outlooks for the industry.

Professional investors gave a very strong indication that in 2013 we will see a move away from bond funds, with 68% of delegates saying they will allocate less money here in the coming year.

This compares to 16% who said they would increase their allocation and 16% who said they would keep it the same as in 2012.

This marks a stark turnaround to data released in October by the Hong Kong Investment Fund Association which showed that inflows into bond funds by Asian investors had reached a five year high.

Meanwhile, 54% of delegates said Asian fixed income had progressed to be viewed as a standalone, mainstream asset class. This compares to 46% who said it had not reached that status.

Opinion was also split on the question of which macro event is most likely to impact investment decisions.

The speed of the US recovery received 38% of votes, while 31% of respondents opted for either Europe’s attempts to tackle its debt crisis or China’s economic data, respectively.

The United States proved a popular topic, with 69% of voters saying Federal Reserve Chairman Ben Bernanke is the most important decision-maker in the world at present.

This trumped support for the general secretary of the Chinese Communist Party, Xi Jingping, who received 19% of the vote and German Chancellor Angela Merkel, who was viewed as the most important by 12% of respondents.

In a further test of investor sentiment, selectors were asked which asset classes they expect to outperform in the coming year.

On the fixed income side, emerging market debt garnered 52% of votes, while investment grade corporates and high yield each attracted 20% of the votes.

This will represent a shift from current trends, with high yield (46%) being pinpointed as the fixed income sector they have most invested in over the past 12 months, followed by investment grade corporates (25%) and emerging market debt (17%).

In equities, an apparent home bias came to the fore, with Asia leading the way with 48% of respondents saying they were most positive on this sector. This was ahead of the US (26%) and the emerging markets (13%).

This bias was also present when they were questioned over what equity sector they had been investing in most over the past year.

Asian equity came top with 52% of votes while the US came in second with 22%, followed by emerging markets (17%) and Europe (9%). Both Japan and Eastern Europe received no support from voters.