Investors slow to get back into equities

Written by Norzuhaira Ruhanie
Wednesday, 19 August 2009 20:38

KUALA LUMPUR: It is almost a year since the collapse of Lehman Brothers in the US, a major turning point which unleashed chaos upon the global financial system. Since then, markets worldwide have dipped and later rallied, especially in the past few months, due to stabilising conditions and less gloomy economic numbers from key countries.

The July Lipper FundMarket Insight Report said that on a year-on-year basis equity funds were still slightly in the red on average, with an investor looking at a return of minus 3.76%.
For those who invested earlier in the year, however, equities have delivered handsome returns. Year-to-date all types of Malaysian funds continued to deliver positive returns, with equity funds giving a return of 32.19% on average, said the Lipper report.

The average return for July was 4.97% across all types of fund groups - the best performing group being funds invested in equities, delivering an average of 7.2% for the month. Equity Asia Pacific and Equity Asia Pacific ex Japan funds made up almost all the top-performing funds in July, with the CIMB-Principal Asean Equity fund the top-performing fund in the latter category.

CIMB-Principal Asset Management Bhd CEO J Campbell Tupling said that as at July 31, the year-to-date returns of its funds ranged from 33% for those with domestic exposure funds to 50% for funds with regional weightings. “Our funds stayed approximately 70% invested during the market downturn in February and increased equity allocation in March with the expectation of the improvement of the global economy,” said Tupling, noting that at that point, regional price-to-book valuations were very close to one times.

“Recently, we upgraded the banking sector to overweight as we believed that analysts had been too bearish in projecting a huge rise in non-performing loans (NPLs). On our part, we were projecting a rise of only 60 basis points each for 2009 and 2010. We were also early in overweighting the property sector, which is a beneficiary of the low interest rate environment and the 5/95 financing schemes being introduced by various developers,” Tupling said.

Despite a strong rally, however, fund investors have largely stayed out until recently. Fund managers report that in the first half of the year, risk appetite was weak with fund flows favouring the more conservative money market and protected funds. As a result, most retail fund investors missed out on the rally.

“Many investors as usual were unable to buy at the exact bottom in mid-March, considering how bad the economic outlook was at that time and how markets continued to plunge since the start of 2009. There was a lot of ‘pain’ avoidance in the markets at that point in time so the rally in the early stages took everyone by surprise,” said Ivan Ng, Lipper’s research analyst for Asean.

Ng said that there have been inflows into equity funds from money market funds over the last two to three months. “This is not an uncommon phenomenon as a lot of these fund flows are generally ‘hot money’ and flow into the best performing sectors in the short term,” said Ng.

“Although many investors were not able to buy at the bottom, the combination of steadily rising equity markets and improving economic data has probably convinced more investors to join the rally... the brave ones would have entered somewhere in mid-April while the majority of investors may have felt that it was ‘better late than never’ and probably only joined in sometime in late May.”

A private banker said that there were many high net-worth investors who held out during the rally, preferring instead to hold cash and other asset class such as gold.

Manulife Holdings Bhd group CEO Michael Chan said the firm always emphasised to its customers that the equity market goes up and down all the time, and the key will be the long-term investment benefits derived from using dollar-cost averaging. “We don’t encourage our customers to do short-term speculative investments and redemptions.”

In the FundMarket Insight report, Ng said it will be a tough time for the Malaysian economy and market over the rest of the year, “especially since the global recovery story has already been priced into many markets and any untoward shocks to the system that might derail this recovery will likely have a huge effect on sentiment”.