China investor sentiment plunges, yet most still optimistic China will lead growth: Manulife survey

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. 

The research shows that 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 (down 9 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 US, 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 destabilising 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, has led to lower sentiment among investors in China,” said Endre Pedersen, senior managing director, Fixed Income, Manulife Asset Management. 

Nguyen Vu Ngoc Trinh, general director of Manulife Asset Management (Vietnam), expressed optimism regarding investment prospects in the market. 

“We are particularly positive on equities, as valuations are relatively low by historical standards while revenue and net profit growth forecasts are attractive at 11 per cent and 5 per cent year-on-year respectively in 2014 and expected to continue this growing trend in following years,” said Trinh. 

Other finding was that 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, the Philippines, Hong Kong, Taiwan, Singapore and Malaysia all giving China high marks as a market in which to invest – 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 per cent) 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). 

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 per cent, 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. 

In contrast to the generally positive views on China, investors across Asia were split on Japan, the study revealed.

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.  

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). 

Manulife’s Investor Sentiment Index in Asia is a quarterly, proprietary survey measuring and tracking investors’ views across eight markets in the region (Hong Kong, China, Taiwan, Japan, Singapore, Malaysia, Indonesia and the Philippines) on their attitudes towards key asset classes and related issues. 

Manulife is a leading Canada-based financial services group with principal operations in Asia, Canada and the United States. 

Manulife Asset Management is the global asset management arm of Manulife, providing comprehensive asset management solutions for institutional investors and investment funds in key markets around the world. As at June 30, 2014, assets under management for Manulife Asset Management were approximately $281 billion.

   Manulife Asset Management forecasts, as of 30 June 2014