HIGHLY optimistic Philippine investor sentiment, along with a general warming towards equities, lifted overall regional investor sentiment slightly higher in the fourth quarter of 2013, according to the latest Manulife Investor Sentiment Index* for Asia.
The Manulife Investor Sentiment Index for the three months to December 31, comprising investors from China, Hong Kong, Indonesia, Japan, Malaysia, Singapore and Taiwan rose to 16, from 15 in the third quarter. The latest quarter included the Philippines for the first time; and with their results included, overall sentiment rose to 22, level with fourth quarter investor sentiment in the United States.
Investor sentiment in Japan rose 9 points in the fourth quarter to 18, with the only other rises in the region seen in Indonesia (up 3 to 41) and Hong Kong (up 1 to -13). Despite the slight uptick, Hong Kong remains the most pessimistic in the region, followed by Taiwan. With a reading of 66, the Philippines has by far the most optimistic investors in the region.
Sentiment towards most of the asset classes in the survey is little changed overall, with the exception of equities, which rose modestly albeit from a low level (up 3 to 9). Cash and own-residence property remain the two most-favored asset classes.
“Having seen strong GDP growth for two consecutive years in 2012 and 20131, the Philippines has emerged at the forefront of Southeast Asia’s developing markets. The upbeat sentiment of Philippine investors at 66 points mirrors consumers’ mounting confidence in this economy which has been able to withstand natural disasters as well as tolerate global market volatility,” said Ryan Charland, President and Chief Executive Officer, Manulife Philippines. “Investors’ high sentiment is also an indicator of the growing demand for investment vehicles enabling them to take advantage of market conditions and strong economic fundamentals.”
Confidence in fixed income
Despite widespread speculation about tapering of the quantitative easing program in the U.S. and its potential impact on bonds, Philippine investor sentiment towards fixed income (60) remains substantially above equities (48) and is the most positive rating towards fixed income of all surveyed markets. However, fixed income ranks low when it comes to actual investment, with investors holding just 5 percent of their portfolios in bonds.
Aira Gaspar, CFA, Chief Investment Officer of Manulife Philippines, affirms the promising long-term prospects for fixed income investments given improving local market conditions. “We see reasons for investors to shift their exposure from a non-performing asset class like cash to fixed income securities with higher recurring income potential during 2014. Although local bond rates are biased to move upwards in the near term because of rising supply-side price pressures, we expect local bonds to generate positive returns in the long-term given the country’s favorable growth prospects, which are supportive of continued debt and fiscal consolidation.”
“While the local bond market is not immune to shifts in global risk appetite, it is less vulnerable to fund outflows and tightening of funding conditions. In this case, the Philippines is benefitting from relatively low offshore participation and continued domestic liquidity formation, which is underpinned by structural inflow of foreign exchange receipts,” added Ms. Gaspar.
Investor sentiment towards equities rises, led by Japan
Investor sentiment towards equities in Japan climbed to 36 from 21 in the fourth quarter, driven by a 57 percent rise in the Tokyo stock market in 2013. However, the index for Japan still lags the US (up 7 to 52), where the Dow Jones Industrial Average rose 26.5 percent during the year.
The gains in the Japanese stock market were spurred by better corporate performance as unprecedented government stimulus – popularly coined “Abenomics” – has driven rounds of currency depreciation, a pick-up in the economy and modest inflation. However, the gains were not mirrored in Japanese investors’ equity holdings, which dropped three points to 16 percent of their portfolios.
Elsewhere, in Malaysia, sentiment towards stocks rose to 30 from 18 in the third quarter, perhaps getting a boost from the local stock market’s strong finish to the year – up 10.5 percent in 2013. In the Philippines, nearly as many investors were positive towards stocks (48) as those in the US (52), perhaps reflecting optimism over its economy being one of the fastest growing in Asia, rather than the stock market, which rose only 1.3 percent during the year.
Appetite for cash defies logic
Given the prospect of rising interest rates, inflationary pressures and currency depreciation, holding cash may not seem to be the best investment option. Yet cash remains the favored asset class across the region, with sentiment towards it particularly strong in Malaysia, Indonesia and the Philippines – all scoring between 70 and 80. In contrast, sentiment towards cash in the US was very negative (-54).
Philippine investors keep a massive 56 percent of their total assets (excluding their own home & other property) in cash, or about 11 months of personal income. They prefer to hold on to cash because they want safety and liquidity. However, only a third of their cash is held for day-to-day and unexpected expenses, leaving nearly two thirds of the cash sitting idle.
The MISI survey showed that Philippine investors were willing to put some of their cash to work under the right circumstances. Well over half said they would consider investing more in products that offered guaranteed income (61 percent), and another third said they would move their cash if the investment offered steady returns (34 percent). A top consideration for investors was insurance products, which ranked higher than direct investment in equities and mutual funds. Mr. Charland sees greater room for insurance in one’s portfolio. “The new generation of these insurance product offerings give our customers the opportunity to take advantage of market upswings while being adequately protected.”
For more findings and related information from the Manulife Investor Sentiment Index in Asia, visit www.manulife-asia.com.
