Investor sentiment across Asia rose in the first quarter of 2014, buoyed by equities and mutual funds, along with a rise in optimism among investors in Malaysia, Indonesia and China, according to new research from Manulife.
The Manulife Investor Sentiment Index* for the region rose from the fourth quarter of 2013 (+2 to 24), driven mostly by sharply higher sentiment towards equities (+7 to 16) and mutual funds (+13 to 21). The improved sentiment in these sectors offset modest declines in attitudes towards property.
The higher sentiment was driven upward mostly by China, Indonesia and a surge in investment optimism in Malaysia. In Malaysia, investor sentiment rose on stronger economic growth and the belief that market conditions are improving.
Investors there share the top spot with the Philippines as the region's most positive.
Investors in Hong Kong and Taiwan remained negative -- but there was an improvement on the previous quarter, with Hong Kong at -11 (+2) and Taiwan at -6 (+5). In only three markets did sentiment fall: Japan, the Philippines and Singapore, albeit in each case remaining positive.
"There's generally a lag between economic developments and retail investor attitudes, so improved sentiment on equities is in part due to significant gains on equity markets and economic growth in the US and Eurozone," explained Ronald Chan, Head of Equities, Asia, for Manulife Asset Management. "Looking ahead, we are optimistic on Asian equities for the remainder of 2014. Valuations are attractive and economic fundamentals point to an improving trend in many regional markets."
China Stimulus, Indonesia Election Fever Support Sentiment
Commenting on China, Chan noted the rise in sentiment towards equities despite heightened concern over the economy.
"We believe sentiment was bolstered by the rapid implementation of a 'mini-stimulus' program in the first quarter on 2014 and by the government's continued commitment to economic reform and higher quality long-term growth. Sentiment could continue to rise going forward, as the Chinese government recently called for banks to accelerate the issuance of mortgages," he said.
"Policy effect is also playing a role in Indonesia where, regardless of outcome, the upcoming election is sparking optimism over the potential for reform, thereby creating fresh investment opportunities," said Chan.
In Malaysia, investor optimism was reflected by a rise in sentiment towards mutual funds (+16 to 54) and equities (+9 to 39). Unlike in other parts of the region, sentiment towards property also rose sharply (+10 to 62).
"Small- and mid-cap equities have driven gains in Malaysia and we see this continuing through the second half of 2014 based on robust consumption as businesses stock up ahead of the goods and services tax implementation planned for early 2015," said Chan.
Only in Malaysia was there a discernible increase in equities as a percentage of investors' total asset portfolios (from 9 per cent to 12 per cent) from the previous quarter. It nudged up slightly in other markets, such as Hong Kong, mainland China, Taiwan and Singapore, but these moves were marginal. This is despite the fact that two-thirds of Asian investors say they review their investment portfolios every six months, with a quarter of them doing it every three months.
Family and Friends are the Main Influence on Investment Decisions
The research looked at levels of financial literacy, where investors go to for advice and the key influences on their investment decision making.
The findings showed a correlation between higher levels of financial literacy and a greater breadth of investment experience across asset classes. By comparison, how long someone has been investing seems to have little impact on their financial literacy.
However, regardless of time spent investing or their breadth of experience, investors say they are influenced most by family, friends and colleagues in their investment decisions. The research shows reluctance by investors to seek outside counsel for investment planning. Most, particularly those in the Philippines, Malaysia, Indonesia and Japan, say they feel they don't need outside help and are happy to manage their investments alone.
"It's natural that people should turn to family and friends for financial advice, but they don't necessarily have the right skills or expertise," said Robert A. Cook, President and CEO, Manulife Asia. "If you were ill, you'd visit the doctor. Investors should seek professional advice in the same way. Also, taking a disciplined and thoughtful approach is the best way investors can achieve investment performance."