– China investor sentiment falls to its lowest level; sharpest declines in equities, property
– Japan’s economy divides opinion: investors optimistic in SE Asia, pessimistic in Greater China
– Rising sentiment in Singapore and Indonesia helps keep overall Asia Index flat
HONG KONG, Aug. 26, 2014 /PRNewswire/ — Investor sentiment in China plunged in the second quarter of 2014 to its lowest level since early 2013 amid concerns about a deterioration in the country’s economic outlook and investment returns, according to new research from Manulife.
The Manulife Investor Sentiment Index* for China fell 12 points during the quarter from 23 to 11, the lowest level for the mainland since the Index was initiated at the start of 2013. The sharp decline seen in China was, however, offset by improved sentiment elsewhere in the region leaving the overall regional index for Asia unchanged at 24, one point above the US index which was also unchanged quarter on quarter.
 John Hancock Investor Sentiment Index, June 2014
Investor sentiment in China was down across the board – all six of the asset classes covered in the index posted marked declines. The sharpest falls related to stocks (down19 to -4) and mutual funds (down 22 points to 15). Sentiment towards real estate continued to fall (down 5 to -8), while that towards investors’ own home also hit its lowest level, although at 8 points (down 6) it remained in mildly positive territory.
In stark contrast, investor sentiment in the U.S., the world’s largest economy, was far higher towards mutual funds (49), stocks (46) and property (own home 58, real estate 49), and very negative towards cash (-52) and bonds (-15), keeping the overall American investor sentiment index (at 23) close to the Asia indicator.
"This survey was carried out after several near credit defaults in China which raised concern over the potential for a destabilizing credit event in the ‘shadow banking’ sector. We believe that this, combined with the renminbi’s depreciation in the first five months of the year, a property market slowdown and a string of worrisome economic indicators, which included five months of weak manufacturing PMI figures, has led to lower sentiment among investors in China," said Endre Pedersen, Senior Managing Director, Fixed Income, Manulife Asset Management.
 Manufacturing Purchasing Managers’ Index (PMI) fell below 50 in January and troughed in March before recovering to 50.7 for June (numbers over 50 indicate expansion). HSBC Emerging Markets PMI, 1 July 2014.
Regional Investor Sentiment About China’s Growth Outlook Still Very Positive
While domestic investor sentiment in China towards their own market declined, their concerns were not mirrored by most investors overseas. Of the individual markets, China was the clear standout among investors, with those in Indonesia, Malaysia, the Philippines, Singapore, Hong Kong and Taiwan, and all giving China high marks as a market in which to invest (see Fig. 2) – the latter four rating it higher than the United States. By stark contrast, only Japan investors rated China negatively as a place to invest.
Within Asia, nearly two-fifths of investors (37 percent) expect China to be one of the top two fastest growing economies in the next two years, by far investors’ top choice, and ahead of the next-favored market, Japan (16), followed by Singapore and India (15), and South Korea (9). Even in China, despite the decline in investor sentiment, investors were nonetheless optimistic about China’s growth prospects over the next two years – in fact, they were the most bullish of all.
"While China’s GDP is running slightly under the government’s full-year target of 7.5 percent, we agree with general investor sentiment that it will remain one of the fastest growing economies in the region in the coming years," said Pedersen. "GDP growth was better than expected for the second quarter of 2014 as stimulus measures – including targeted monetary policy loosening – continue to work their way through the economy. All things considered, we expect China’s full-year GDP growth to be close to the government’s official 7.5 per cent target.
"As China shifts gears to promote domestic consumption as a foundation for more self-sustaining economic growth, reforms are likely to cause a degree of short-term economic pain. However, it should be noted that such pain in the China context likely means the continuation of relatively robust economic growth when compared to developed markets. At the same time, as China goes down this path, the broader region is expected to benefit as demand for low-value-add, highly capital intensive export industries shifts to neighboring markets which offer cost-saving advantages."
Investor Sentiment on Japan Divided
In contrast to the generally positive views on China, investors across Asia were split on Japan. Investors in the Philippines, Indonesia and Malaysia rated Japan about the same or higher than China in terms of being a good place to invest. Investors across Greater China, however, rated Japan’s investment potential negatively. A similar pattern was evident in investors’ views of Japan’s economic growth prospects. While the three emerging South East Asia markets said they expected Japan to be at least the second fastest-growing economy over the next two years, those in Greater China were far less optimistic, variously rating India, South Korea and Singapore ahead of Japan.
"A degree of caution is warranted with regard to Japan. Some investors may be interpreting the past 18 months of relatively robust stock market conditions as evidence of underlying economic strength," explained Pedersen. "While we acknowledge that Japan’s economic growth prospects have somewhat improved since the launch of Abenomics – the Abe administration’s economic stimulus program – recent economic data has raised questions about the sustainability of the effects. Thus, we believe it is premature to expect rapid acceleration of economic growth in Japan in the near future."
Rising Sentiment in Singapore and Indonesia Keeps Regional Index Flat
Overall regional sentiment was flat largely because of big increases in other parts of the region, notably Indonesia and Singapore. In Indonesia, sentiment jumped nine points to that market’s second-highest level in the survey’s series, led by big increases in sentiment towards fixed income (up 19 to 56) and equities (up 13 to 21). In Singapore, sentiment rose five points to 15, its highest level since the survey was initiated, driven by a rebound in sentiment towards investing in both primary residence (up 10 to 23) and other real estate (up 3 to -8).
For more information on the Manulife Investor Sentiment Index in Asia, please visit www.manulife-asia.com.
*About Manulife Investor Sentiment Index in Asia
Manulife’s Investor Sentiment Index in Asia is a quarterly, proprietary survey measuring and tracking investors’ views across eight markets in the region on their attitudes towards key asset classes and related issues. The Index is calculated as a net score (% of "Very good time" and "Good time" minus % of "Bad time" and "Very bad time") for each asset class. The overall index is calculated as an average of the index figures of asset classes. A positive number means a positive sentiment, zero means a neutral sentiment, and a negative number means negative sentiment.
The Manulife ISI is based on 500 online interviews in each market of Hong Kong, China, Taiwan, Japan, and Singapore; in Malaysia, Indonesia and the Philippines it is conducted face-to-face. Respondents are middle class to affluent investors, aged 25 years and above who are the primary decision maker of financial matters in the household and currently have investment products.
The Manulife ISI is a long-established research series in North America. The Manulife ISI has been measuring investor sentiment in Canada for the past 15 years, and extended this to its John Hancock operation in the U.S. in 2011. Asset classes taken into Manulife ISI Asia calculations are stocks/equities, real estate (primary residence and other investment properties), mutual funds/unit trusts, fixed income investment and cash.
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