J.P. Morgan Investor Confidence Index reflects global events, increased need for caution

Apr 13, 2011

Results announced for the quarterly survey conducted for the J.P. Morgan Investor Confidence Index in Hong Kong.

Hong Kong, 13 April 2011:  J.P. Morgan Asset Management (JPMAM) today announced the results of its nineteenth quarterly survey conducted for the J.P. Morgan Investor Confidence Index (JPMICI) in Hong Kong.  The Index is designed to reflect local investor sentiment towards the Hong Kong market over the next 6 months.  The latest findings show that the confidence of Hong Kong investors fell from the December level of 126 to 120 in March.  This represents a gradual decline of Hong Kong investor confidence in the first quarter of 2011.

At the end of December, Hong Kong investor confidence was best described as stable yet cautious, with investors looking for more convincing evidence that the global economy had entered a real and sustainable recovery.  Recent events, such as the Japan earthquake and continuing unrest in the Middle East, appear to have adversely affected opinion, with the Global Economic Environment Index dropping 10 points from 117 in 4Q2010 to 107 in 1Q2011.  This lack of confidence in global conditions is likely to impact locally, with all other contributing components of the index also on a downward trend: most affected is the Value of Investment Portfolio Index (down 9 points), The Hang Seng Index (down 5 points) and the Hong Kong Investment Environment and Atmosphere Index (down 4 points), while the Amount of Investment Index fell 3 points.

Mr. Eddy Wong, Head of Intermediary Distribution, said, ‘For Hong Kong investors, the optimism that was growing up to and including the last quarter of 2010 has been replaced by a general caution, as they “wait and see” what the long-term impacts of the Japanese earthquake, rising oil prices and continued unrest in the Middle East will be.  40% think the Hang Seng Index is likely to trade above 24,001 in 6 months time (compared to 61% in 4Q2010) and an increased percentage of investors (69% up from 60%) believe the market will waver between bull and bear.  This cautious approach even influenced how investors expected to spend their HK$6,000 cash from the Government, with a majority (60%) planning to use the money for savings and investments, rather than holidays or general spending.’

‘Investors are cautiously optimistic about the Hong Kong economy in 2011.  On the one hand, 39% expect employment opportunities to be better in the next 6 months, and 34% expect their income to increase in the same time period, both of which indicate optimism.  However, the potential bursting of the property bubble and threat of inflation represent risks that introduce the need for caution.  The bursting of the Hong Kong property bubble (24%) and inflation (23%) represent the two biggest risks for investors.  58% of investors expect commodity prices to be higher in the coming 6 months, and a further 31% expect them to be extremely higher than current levels.  Food and rental are the areas where price increases are most expected.  Property prices are also expected to increase from current levels in the coming 6 months: 66% believe they will be more expensive, 11% much more expensive.’

‘43% of investors classify themselves as “fairly cautious but willing to assume some risk” and 41% say they “want to preserve capital, but don’t mind accepting some small price fluctuations to enhance the potential return of investment” while fewer than one in ten would classify themselves as financial risk takers.  As naturally cautious investors, recent world events have affected financial decision making: 50% have changed their investment strategy due to the Japan earthquake and 33% because of rising oil prices.  Overall, the majority (66%) will “play safe” regarding their overall investment strategy, expecting no change in the next 6 months: 13% will be a “bit more conservative” and 18% will be “a bit more aggressive”. The recent events in Japan means this market now represents the greatest risk for overseas investment (63%), while 62% of Hong Kong investors believe Mainland China to be the market with least risk and highest potential (unchanged from 4Q2010), remaining far ahead of other markets in Asia.’

‘The climate of caution inherent in the Hong Kong market at present has also affected the types of investments that are expected to be made in the coming 6 months.  Stocks remain the most likely investment product, with only a small drop from 92% to 88%, while the expected investment in Funds has increased 7 points (44% to 51%).  Reflecting the bull and bear personality of the market, investment in both Life and Savings Insurance (27% from 22% in the last survey) and Foreign Currencies (41% from 30%) are both expected to increase.’

The J.P. Morgan Investor Confidence Index score is derived from asking survey respondents six questions to clarify the confidence of investors about (Q1) the Hang Seng Index, (Q2) HK economic environment, (Q3) HK investment environment and sentiment, (Q4) global economic environment, (Q5) the possibility of personal asset appreciation, and (Q6) the possibility of increasing their investment.  These 6 questions form the sub-indices of the J.P. Morgan Investor Confidence Index.  The Index and all sub-indices have a range between 0 and 200.  A number greater than 100 represents a positive outlook and vice versa.

Mr Emerson Yip, Investment Manager of the Greater China Team, added, ‘The wider market picture indicates that 2011 has the potential to be better than 2010. Although external risks (EU fiscal issues, Middle East unrest and the fallout from the Japan earthquake) remain largely unpredictable, long term structural growth in China remains intact as the country progresses to a new chapter of economic development.’

‘The policy risk is increasingly priced-in and recent macro data indicates that the tightening measures are working. The strong earnings outlook, coupled with the subsiding developed market to emerging market trade leading to more supportive liquidity conditions, signal attractive buying opportunities.’

Cimigo, an independent market research company, was commissioned to conduct the survey on behalf of J.P. Morgan Asset Management.  The survey was developed by interviewing a random sampling of 505 retail investors (N = 505) aged between 30 and 60 who have at least 5 years of continuous investment experience with liquid assets in excess of HKD100,000.  The survey was completed at the end of March 2011.

J.P. Morgan Asset Management has been monitoring retail investor sentiment closely within the major markets of Europe for some time by conducting an Investor Confidence Survey.  This first began in London in the early 1990’s with the publication of a UK Investor Confidence Index.  In Asia, a similar Investor Confidence Index has been launched by the firm in Taiwan, Korea, Singapore and India, and has been well received by local investors.

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For further information please contact:
Daniel Chui, Head of Investor Communications  
Telephone: (852) 2800 2874    
Email: daniel.wc.chui@jpmorgan.com  

Harriet Ngan, Internal & Media Communications
Telephone: (852) 2800 2776
Email: harriet.hy.ngan@jpmorgan.com
Issued by JPMorgan Funds (Asia) Limited

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Notes to Editors

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J.P. Morgan Asset Management is a global asset management leader providing world-class investment solutions to clients. With almost US$1.3 trillion in assets under management (the Asset Management client funds of J.P. Morgan Chase & Co. as at 31 December 2010) and offices in 41 locations around the world, J.P. Morgan Asset Management offers global coverage with a strong local market presence, and leadership positions in most asset classes.

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