J.P. Morgan Investor Confidence Index shows weakening investor confidence

Jul 27, 2010

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

Hong Kong, 27 July 2010:  J.P. Morgan Asset Management (JPMAM) today announced the results of its sixteenth 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 its March level of 128 in the last quarter to 122.  This represents a gradual decline of Hong Kong investor confidence in 2010.

The J.P. Morgan Investor Confidence Index recorded 122 against a neutral level of 100 in the latest survey, a moderate decline of 6 points from the first quarter of 2010.  The latest index indicates that overall investor confidence in Hong Kong’s prospects is weakening, with components such as Hong Kong’s investment atmosphere (down 9 points), global economic environment, and appreciation in investment portfolio (both dipping 8 points respectively) reaching levels unseen since the first half of 2009.  Conversely, confidence in the Hang Seng Index remained steadfast over the quarter.  This is in-step with their current view of the Hong Kong economy, which investors believe has reached a more stable level at 52%, up 11% from the last quarter, despite concerns regarding Europe's sovereign debt crisis and negative US economic data.

Mr Eddy Wong, Head of Intermediary Distribution said, “Inflation, rising property prices and the weak external economic situation have contributed to a cautious mood amongst Hong Kong investors.  This disposition is reflected in a 9% decrease in the percentage of local investors who expect the value of their investment portfolio to appreciate over the next 6 months (50% in 2Q’10 vs. 59% in 1Q’10).  In addition, Hong Kong investor confidence in the salary and jobs markets have shown a consecutive decline since December 2009, with the index representing an increase in income and better employment opportunities reaching 110.”

“In terms of the perceived market risk in 2010, 25% of local investors rank inflation as the biggest risk, up 5% from March.  This is followed by the fear of emerging asset bubbles, particularly in Hong Kong property (21%).  This correlates with the expectation of higher commodity prices in the next 6 months.  78% of local investors (compared to 73% last quarter) share similar views on the direction of commodity prices.  One of the expected drivers of rising commodity prices is food & grocery prices, which rose 4% over the quarter from 34% to 38%.”

“Investors also have modest expectations towards the stock market as they watch for more concrete signals amid the volatility.  65% of investors still believe that the current stock market is wavering between bull and bear, 10% more than last quarter.  In addition, 78% of investors think the Hang Seng Index will likely trade between 20,001 and 24,000 at the end of December 2010; while 10% think it may surpass 24,000.  Comparatively, 19% in last quarter believed the HSI would surpass 24,000 by 3Q’10. ”

“In this survey, investors were also asked about the impact of the European financial crisis on their investment strategy.  While 75% think there is no impact on their investment strategy, 25% of survey respondents indicated that the European financial crisis affected their local investment strategy or overseas investment strategy, or both.  48% of these people believe that the crisis will last for 1 to 2 years.  Of those investors who plan to have more conservative local investment strategies due to the crisis, the majority will reduce stock investments (64%).  However, 42% do not plan on reducing local investments but will reallocate their portfolio. Among investors who will adopt more conservative overseas investment strategies, the trend is quite similar with 61% reducing fund investments and 54% reapportioning investments.”

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, “We expect the Greater China markets to continue to offer compelling investment opportunities, driven by China's on-going success in achieving a soft landing.  In particular, there are very interesting investment opportunities in the small/mid-cap sectors.  Despite substantial outperformance since the rally in early 2009, their valuation relative to the broader index remains at average historical discount.”

“In terms of market outlook, China remains an overweight in our Asian portfolios.  We believe the slowing economic growth is timely and ultimately healthy and does not preclude the opportunity to identify attractive investment situations.  Indeed, monetary policy remains supportive and there will be continued fiscal support, including the potential of additional stimulus.  Long-term structural re-balancing, pivoted on the policy objective of increasing consumption as a share of GDP, has important growth ramifications across many sectors and stocks.  Although valuations are hovering around the historical average, they are based on undemanding earnings growth estimates.”

“Hong Kong remains a fortuitous beneficiary of the robust economic growth in China coupled with loose monetary policy, which appears primed to stay ‘lower for longer’.  The market has been trading at a relatively attractive valuation entry point.  As for Taiwan, it is a two-sided story driven by increasing economic ties with China and global economic recovery.  While both progress they will hit potholes along the way.  Taiwanese companies still have ample opportunities to benefit from the overriding positive trends.”

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 503 retail investors (N = 503) 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 mid-July 2010.

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 Japan, Taiwan 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
Issued by JPMorgan Funds (Asia) Limited

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Notes to Editors

J.P. Morgan Asset Management (“JPMAM”) is the brand name of J.P. Morgan Chase & Co’s asset management companies.

J.P. Morgan Asset Management is a global asset management leader providing world-class investment solutions to clients. With almost US$1.2 trillion in assets under management (the Asset Management client funds of J.P. Morgan Chase & Co. as at 30 June 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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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 almost US$90 billion (30 June 2010) of funds managed across the Asia Pacific region.

As part of a major global investment group, we are committed to providing specialist teams with the resources needed to deliver successful products and performance to our clients. The Hong Kong-based Pacific Regional Group, together with the local presence of the Global Portfolios Group, forms the core of JPMAM’s investment management operations. In addition to the knowledge and experience of our individual investment professionals, the stability of the team has enabled JPMAM to develop strong relationships with local clients.

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