The latest investor sentiment survey for Manulife found that investor sentiment across Asia fell sharply in the third quarter of this year, with the most noticeable declines seen in Japan and Indonesia and the deepest pessimism in Hong Kong and Taiwan, driven largely by deteriorating expectations towards the equities and property sectors.
The Manulife Investor Sentiment Index in the three months to Sept. 30, based on 3,500 interviews across seven Asia markets, dropped six points from the previous quarter to 15. This was still in positive territory but well below that seen in Manulife's parallel index in United States (20) which fell by the same amount during the quarter. The index showed sentiment towards all surveyed asset classes to be at best lukewarm. Investor sentiment was lowest in Hong Kong (-14) for the second quarter running, while investors in Malaysia were the most upbeat (49).
"These findings underline the caution felt by investors around the region. People are sitting on their hands, unsure what to do," said Robert A. Cook, President and CEO of Manulife Financial in Asia. "The survey is clear that Asia investors aren't looking for excitement. They want secure, steady investment returns. From their perspective that makes a lot of sense, particularly when saving for long-term goals."
Investors across the region cited market volatility as the main reason for having less appetite for stocks. The prospect of a tapering of quantitative easing in the U.S. also fuelled concerns. However, the increasingly negative sentiment towards stocks was not mirrored in actual investment holdings and, when asked which asset classes they would choose if they were to make further investments, stocks remained the most popular choice.
Sentiment towards property also fell in most markets, in part reflecting government interventions to cool prices or increase supply. Sentiment fell sharply in Indonesia, Japan and Taiwan. The most pessimistic investors on property, though, were in Hong Kong. In this market, overall sentiment started negative in the first quarter this year and has continued to decline since, as more than two thirds of investors there believe current prices are too high and that a correction is likely.
"Investor uncertainty has been largely fuelled by the prospect of the Fed tapering its quantitative easing program and the protracted debt-ceiling impasse. With the Fed announcing plans to begin tapering of bond purchases, bond investors began selling their holdings in emerging markets, particularly those with current account and budget deficits," said Ronald CC Chan, Head of Equities, Asia for Manulife Asset Management. "This brought about currency weakness in these markets which, combined with weak May-to-July Purchasing Managers Index readings from China, led investment sentiment on equities to decline during the third quarter."
Chan said that sentiment on equities has yet to recover in much of Asia, but that valuations are attractive in many markets. "We are optimistic on the mid- to long-term outlook. QE tapering is inevitable, but the Fed has indicated that interest rates will remain low to support further growth. Meanwhile, China, Taiwan and Korea all posted positive Flash PMI readings for August and September. In addition, governments in the region are taking steps to tackle issues such as current account imbalances and inflation."
For now, one outcome is that cash remains king in the region, with an average of 22 months' personal income held as cash, rising to 35 months in China and 39 months in Singapore. Cash makes up an average 40% of investors' assets, a reflection of the value investors place on safety, stability and liquidity when it comes to their wealth.
"We're seeing unnecessarily high levels of cash holdings across the region," said Donna Cotter, Manulife's Head of Wealth Management, Asia. "For many investors this represents a big missed opportunity, since their cash is providing them a very poor return compared to other options available to them."
The survey did however suggest strong potential for greater investment. Of the cash holdings, only about 20% is for day-to-day expenses or emergencies - so the vast majority could potentially be shifted into investments. When asked what could influence them to do so, the most common responses were the prospect of either steady, modest returns (47%) or guaranteed income (41%). This was reflected in sentiment towards fixed income investments, which held up well relative to the other assets.
This article was published in Opalesque's Asia Pacific Intelligence our monthly research update on alternative investments in the Asia-Pacific region.