According to an HSBC survey, the Asia-Pacific region, excluding Japan, recorded the largest capital outflow in the second quarter this year. However, fund managers still hold a positive view about Greater China markets.

According to the survey, the total estimated net fund outflow reached $28.5 billion in the second quarter of this year, a 0.67 percent decline in fund under management (FUM) from the first quarter.

In the first quarter of this year, the bank saw a decrease of total FUM of participating fund houses at 2.52 percent from the fourth quarter of 2007.

The estimated net outflow in the second quarter was mainly driven by an estimated $50 billion net outflow from equity funds which were offset partially by estimated net inflow of $15 billion and $11 billion into balanced funds and money funds.

Asia-Pacific (excluding Japan) equities posted an estimated net outflow of equivalent to 20 percent of sector FUM in the second quarter of this year, compared with an estimated net inflow of six percent of FUM in the first quarter, the bank said in a statement.

Bruno Lee, head of wealth management for personal financial services in Hong Kong said, "Fund outflows in the second quarter are indicative of investors' concern about the warning signs of inflation and economic slowdown in Asia. Investors move away from volatile equity markets to find a safe haven in bonds and cash."

The FUM from Greater China equities, including Hong Kong and mainland equities, were a total of $223 billion and $220 billion dated March 31, and June 30, 2008, respectively.

A slight drop of $3 billion from the first quarter reflected the Greater China equities were still resilient in the fluctuating market, Lee said.

"Fund managers are optimistic over Greater China and Hong Kong equities in the third quarter, but uncertainties in the current market of the Asia-Pacific region like political instability in Thailand may have an impact on retail investors' confidence," said Lee.

Though fund managers remain bullish on the overall Asia-Pacific ex Japan market, the percentage of managers with underweight views for the third quarter increased from last quarter.

On the contrary, more fund managers favor global emerging markets or high yield bonds in the third quarter.

In the survey, equity funds net outflows in the second quarter accounted for 1.66 percent of FUM, compared with 4.67 percent in the previous quarter, though there was a slight slowdown in pace.

However, bond funds inflow in the second quarter was equivalent to 1.4 percent of FUM with high yield and emerging market bonds.

(HK Edition 09/10/2008 page2)