J.P. Morgan Investor Confidence Index more confident locally, but cautious overall

Jul 12, 2011

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

Hong Kong, 12 July 2011:  J.P. Morgan Asset Management (JPMAM) today announced the results of its 20th 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 March level of 120 to 118 in June.  Investor confidence continues to be affected by global market conditions.

Between 4Q2010 and 1Q2011 the Global Economic Environment Index dropped 10 points to 107, and continued to drop this quarter (though less dramatically), to 103. While other components of the Index also fell, the latest survey shows that Hong Kong investors are more confident when it comes to local conditions as the score for the Hang Seng Index (132) is 29 points ahead of the Global Economic Index; the Appreciation of Assets Index (121) is 18 points ahead and the Hong Kong Economic Environment Index is (120) is 17 points ahead.

Mr. Eddy Wong, Head of Intermediary Distribution, said, ‘The overall Confidence Index was weakened marginally by the impact of global financial issues; 30% of investors have changed their investment strategies because of the European debt crisis, 22% because of the likelihood of a hard landing in China’s economy and another 22% because of the end of QE2.’

‘One third of investors expect their income to increase in the next 6 months, a third will increase their levels of investment, and almost half think it is likely that their investment portfolio will appreciate in the coming 6 months. A third of respondents also expect Hong Kong’s employment opportunities to be better in the same time period. This confidence also extends to the Hang Seng Index, with 64% believing it will increase by the end of December 2011. 22% expect the Hang Seng Index to trade above 24,000 by that time.’

‘However, this optimism is tempered by an expectation that commodity prices will also increase: 53% believe prices will be higher than currently while 33% expect them to be much higher. The driving forces for inflation are expected to be food (44%) and rents (37%). Concerns over rising property prices are also a factor; 60% expect them to be more expensive, and a further 9% expect them to be much more expensive. Indeed, the potential bursting of the property bubble is cited as the biggest risk to the Hong Kong economy (28%), followed by slowdown of economic growth in the Mainland (15%) and the European debt crisis (12%).’

‘Hong Kong investors’ attitude to risk remains roughly at parity to 1Q2011, with slightly more investors describing themselves as “fairly cautious but willing to assume some risk” (46% vs. 43% in 1Q2011), and 1 in 10 describing themselves as “risk takers”. Just as the market is described as a bull and bear fight by 57%, so too are investment attitudes: 18% expect their investment strategies to be more conservative over the coming 6 months while 17% expect them to be more aggressive. The majority continue to prudently wait and see how global economic conditions change – 64% expect their investment strategies to remain the same as currently.’

‘With investor confidence higher in regard to the local economic environment when compared to the global environment, it is perhaps not surprising that this is reflected in where Hong Kong investors actually invest: 70% are invested in the Hong Kong market and 30% are invested in overseas markets. Even so, for those investing overseas, the preference is for markets ‘close to home’, with 93% investing in other Asian markets (of which China accounts for 86%), 34% investing in Europe, 31% in emerging markets and only 19% investing in the US.’

‘China is viewed as the market with the highest potential for growth in 2011 (66%), followed by India (10%) and Singapore (7%), while Japan is considered the market with the highest risk (32%) followed by Europe (25%) and the US (10%). For those investing in overseas markets, fund products are most preferred in the last 6 months (84%), far ahead of foreign currencies (45%), stock (20%) and bonds (7%).’

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.

Ms Grace Tam, Vice President of Investment Services, added, ‘While economic activity may be softening, we believe it is most likely a mid-cycle pause rather than a renewed downturn. In Asia, GDP growth will remain strong, supported by consumption and infrastructure, and a more supportive global environment.’ 

‘On balance we are overweight stocks versus bonds, although in the short term, markets remain vulnerable to any events such as the sovereign debt crisis. Within equities, we have preference for North America, Asia and Emerging Markets. It is worth noting that Asian valuations have fallen below the long-term average. Within bonds, we continue to prefer credit and are overweight emerging market debts and high yield bonds.’

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 504 retail investors (N = 504) 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 in early July 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, India and Singapore, 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 over US$1.3 trillion in assets under management (the Asset Management client funds of J.P. Morgan Chase & Co. as at 31 March 2011) 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.

Commitment to Hong Kong
JPMAM’s investment management business in Asia has remained headquartered in Hong Kong for more than three decades and today has over 500 employees based in this location. JPMAM and its investment arm - JF Asset Management - are one of the largest local investment managers in Hong Kong with over US$91 billion (31 March 2011) of funds managed across the Asia Pacific region.

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