In the second half of 2015, investors in the region believe equities in their own markets will deliver the highest returns, with some expecting yields 2-3x higher than other asset classes, according to the survey.
Generally, sentiment has soured on offshore equities and bonds, likely due to global macro concerns, according to the survey of 2400 investors in Asia.
There were some exceptions. Hong Kong and Singaporean investors are open to China and Asia-Pacific ex-Japan products and Taiwanese investors look even further, with allocations to emerging and global markets.
The income attraction
Income or income/growth funds have also become a strong preference as the region’s investors turn away from plain growth products. Korean and Taiwanese investors are exceptions, however. They hold a slight preference for growth funds.
“This trend of a preference for income funds is likely to persist for the next six months, and could be attributed to a growing number of investors seeking to dilute exposure to the expected higher risk of growth funds, in response to volatile and uncertain markets,” the report said.
In the short-term, investors are not expected to make major shifts in allocation, the report said.
Most respondents said they were planning to stay invested in their domestic markets, with Taiwanese investors largely maintaining their current international exposure. Malaysian survey respondents, however, said they plan to diversify their holdings offshore.
“For those that do plan on re-balancing their portfolios, apart from the home market, China and Asia-Pacific ex-Japan markets prove the most popular.”
The report also underscored Asian investors’ unusually high expectations for yield. In the second half of 2015, investors expect up to 26% yield across different asset classes, including local equities.
Loss tolerance for local equities was no more than 12% of invested capital. With offshore products, however, investors were unwilling to take a loss of more than 3-5% of invested capital.
“That such high expectations of yield are not accompanied by higher risk tolerance highlights a significant gap in investor knowledge,” the report said, adding that asset managers need to educate retail investors about basics such as yield versus risk.
Eastspring Investments’ survey was conducted from July to August 2015 and involved online interviews with 2400 investors in Hong Kong, Indonesia, Korea, Malaysia, Singapore and Taiwan.
Eastspring is the Asia asset management arm of UK-based Prudential.