‘Asian Retail Investor Sentiment Rocked by Central Bank Policy, Oil Prices’

NGO News Report :: A crosscurrent of macro-economic developments, ranging from monetary easing and stimulus in Mainland China and Japan, to the collapse in oil prices, heavily influenced retail investor sentiment in the fourth quarter of 2014, according to the Manulife Investor Sentiment Index.

Overall, regional sentiment was down 2 points to 26, dragged lower by Indonesia where sentiment dropped 14 points to 50, Malaysia which fell 8 points to 47, and Hong Kong which declined 5 points to -10.

“Retail investor sentiment is readily affected by factors that hurt their hip pocket and that impacts the employment and economic outlook. Investors in Indonesia were spooked by the lifting of the fuel price subsidy and associated inflation pressures, and Malaysia, being a net oil exporter, was hit by the collapse in oil prices. We expect oil to sink below US$40 a barrel and to stay low for about six months and this will continue to be a headwind for Malaysia’s economy,” says Megan Greene, Chief Economist, Manulife Asset Management.

Hong Kong sank further on investors’ gloomy opinion of the real estate market — with investment property falling a further 9 points to -36 — due to high property prices and the prospect of interest rate increases given the US dollar peg. Less of a factor was Occupy Central, which only two in five Hong Kong investors said influenced their investment decisions.

The index declines were offset by a jump in Mainland China, where jubilant investors pushed the local index up 14 points to 29. The surge was driven by confidence in equity markets, with sentiment climbing 29 points to 58; reflecting retail investors’ confidence due to lower interest rates, the strong lending environment and further liberalization of capital markets.

Japan was another riser, with sentiment up 4 points to 12, driven by the government’s stimulus spending and Prime Minister Abe’s December election victory which renewed his mandate for structural reform.

“An oversupply of everything from oil to liquidity drove markets and investor sentiment in late 2014,” says Greene. “In 2015, big macro-economic events will continue to loom large in markets. China will continue to benefit from targeted monetary and fiscal stimulus, but will see its growth decelerate moderately to around 7 percent in 2015. When it comes to Japan we see very sluggish growth. The weaker yen has failed to boost exports due to competitiveness problems, so the outlook really hinges on deep structural reform.”

Investors’ hopes of hitting 10 percent returns optimistic given their fondness for cash

Retail investors across Asia are expecting on average, to achieve returns of 10 percent in 2015. At the low end of the range is Japan with hopes of 7.4 percent, while Indonesia sits at the top at 14.5 percent. Investors in Mainland China sit near the middle, expecting 11.4 percent, a mere fraction of the year-end 37 percent spike in the Shanghai Composite Index.

When asked which asset class investors expected to be a top performer in 2015, equities ranked on top (23 percent of investors). Property followed (20 percent of investors), but was especially backed in markets like Indonesia and the Philippines where equities are not a common investment. Region-wide, cash was placed equal second (also 20 percent of investors).

Closer inspection of what Asian investors intend to invest in over the next six months, however, raises questions over their ability to meet their performance targets, as cash remains the most-favored asset class and the top destination for increased allocation. This is despite the fact that Asians are already overweight cash, at 37 percent of their portfolios (excluding primary residence) by usual asset allocation standards.

Commenting on investors’ optimistic expectations amid the prevailing market volatility, Peter Warnes, Head of Portfolio Solutions Group, International at Manulife Asset Management said, “Many individuals are finding it difficult to plan for the long term in the prevailing market context, but we feel that retreating to cash is not the solution, especially when the low interest environment means that cash won’t yield returns.”

The exceptions to the prevailing preference for cash are China, Hong Kong and Japan where investors held neutral to negative views on cash in the fourth quarter. A smaller percentage of investors in these markets also say they will ‘invest’ more in cash in the next six months: Hong Kong (27 percent), China (17 percent) and Japan (12 percent). By contrast, investors in these markets are most bullish on equities, with sentiment towards stocks in China at 58 points, Japan at 37 points and Hong Kong at 11.

“A multi-asset investment solution can provide investors with a degree of insulation from unexpected market events, while also potentially generating returns in excess of cash or even delivering a recurring income stream,” continued Mr. Warnes. “A multi-asset portfolio comprises a mix of equities and bonds and a diversified exposure to a range of markets. We currently favor equities over bonds and within Asia we prefer North Asian markets such as Mainland China and Korea over their ASEAN peers. However, an efficiently managed multi-asset solution can quickly shift asset class or geographical exposure should market conditions change”.