Global fund managers increasingly attracted to Asian bonds in fourth quarter

Global fund managers increasingly opt for bonds over equities for investment in the fourth quarter of this year amid continuing doubts over the world economic outlook, according to HSBC’s latest Fund Managers’ Survey.

Fund managers also increasingly prefer Asian bonds as the region continues to outgrow North America and Europe, according to the survey of 13 major global institutions, including BlackRock, Franklin Templeton, JPMorgan and Fidelity.

‘The survey shows global fund managers remain neutral toward equities and bonds the nervousness in the market on growth prospects,’ says Geoff Pidgeon, head of global asset management for HSBC Bank Australia, in a release.

The number of fund managers who say they are adopting an ‘overweight’ strategy on Asian dollar bonds has increased to 75 percent in the fourth quarter, from 38 percent in the third quarter, according to the results of the survey. For Asian local currency bonds, the number has increased to 63 percent from 25 percent.

The number of managers who are ‘underweight’ on Asian dollar bonds, meanwhile, has dropped to zero from 13 percent and, in the case of Asian local currency bonds, has remained at 13 percent.

As for equity investment, the number of managers who are overweight North American equities for the fourth quarter has fallen to 60 percent from 70 percent and, on European equities, to 40 percent from 50 percent.

The number of overweights for Asian equities has also fallen: in the Asia-Pacific region, excluding Japan, it has dropped to 33 percent from 40 percent and for Chinese equities it has declined to 43 percent from 50 percent.

‘Historically, emerging market assets offered potential yield enhancement but were not considered a safe haven,’ Pidgeon explains. ‘However, the resilience of Asia’s corporate debt fundamentals are now making Asian debt and bonds more appealing to investors.’

The survey also shows a 3.3 percent drop in the total funds under management of the 13 institutions surveyed, to $4.14 tn at the end of the second quarter, with equity funds accounting for most of the decline.  

European bond funds under management, including the UK, fell 7.9 percent in the second quarter and Asia-Pacific equities dropped 6.6 percent.

North American equities declined 1.5 percent and Chinese equities fell 1.3 percent. European equities increased 0.8 percent in the second quarter, recovering from a drop in the first quarter.