Hong Kong mutual funds buoyed by investors “buying the dip”, Broadridge says

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Hong Kong’s mutual fund market has bucked the broader stock market decline triggered by the debt crisis in China’s property sector and the coronavirus pandemic as investors piled into funds during sell-offs.

According to figures from US financial technology firm Broadridge Financial Solutions, net inflows into Hong Kong mutual funds in the first ten months of 2021 was US$8.4 billion, a 52.72% increase from $5.5 billion in all of 2020.

That’s “a large improvement”, notes Yoon Ng, senior director of Asia Pacific Insights at Broadridge.

“Despite a combination of recent regulatory crackdowns [in China to control leverage ratios of property developers], the unfolding Evergrande debt crisis, rising geopolitical tensions, as well as the ongoing coronavirus crisis, locally domiciled funds in Hong Kong amassed robust net flows,” Ng says in an interview with Asia Asset Management.

Chinese property giant Evergrande, the world’s most indebted company with over $300 billion in liabilities, defaulted on bond coupon payments, a crisis that is weighing on China’s economic growth.

Other property developers such as China Aoyuan Group and Sunshine 100 China Holdings have also either missed bond payments or failed to reach agreement with their creditors.

According to Ng, Hong Kong mutual fund investors are “buying the dip” during market sell-offs triggered by the defaults. This is underscored by the fact that equity funds captured around $4.25 billion, or half the net inflows in January through October, with roughly 70% contributed by exchange-traded funds.

“Overall, the solid flow gains were partially offset by weak market performance, as the Hang Seng Index plunged about 7% during the same period,” Ng says. “As a result, the locally domiciled long-term fund industry in Hong Kong only grew about 3.6% in assets over the first ten months this year to $149 billion.”

He says technology-themed products have been the biggest winners in 2020 and 2021, driven by strong investor demand for some of China’s largest technology companies.

Technology-themed ETFs attracted $30 billion of net sales in the first ten months of 2021, almost 50% higher than in all of 2020, which Ng attributes primarily to the introduction of technology sector indexes such as the Hang Seng TECH Index.