Western asset managers have suffered a backlash from Asian investors in the wake of the financial crisis, hitting hopes that strong Asian sales can compensate for weak markets in Europe and elsewhere.
Figures from Lipper FMI indicate that cross-border funds attracted net inflows in only two of the 12 Asian markets it analysed in 2008, even as Asian investors put $133bn (£81bn, €89bn) to work.
Although flows into foreign funds began to improve in the first half of this year, Lipper warned that demand remained “fragmented and volatile”.
“One unwanted side-effect of the global financial crisis has been a distrust of foreign fund managers,” said Bella Caridade-Ferreira, head of market research at Lipper FMI. “In markets where the appeal of cross-border funds had been strong, investor support evaporated completely.
“The Lehmans affair has reminded local players and the investor community the west’s gods are mortals.”
Lipper said a “huge backlash from angry investors” over losses caused by Lehman-backed structured products (known locally as mini bonds) in Hong Kong and Singapore had soured sentiment towards the west.
In both Hong Kong and Singapore, as well as Taiwan, which was also open to offshore houses, there are clear signs of a switch to domestic funds, said Ms Caridade-Ferreira.
“The six million dollar question is whether investors in those markets make the distinction between mutual funds and structured products,” she added. “As has been seen in Europe, for many investors the distinction is fuzzy.”
Overall, Lipper said Asian fund sales remained “surprisingly muted” in the first half of 2009, given the strong recovery in regional stock markets. Net sales in China totalled $262bn in 2007 and $48bn in 2008, a year in which the domestic stock market fell sharply. However, Chinese investors withdrew a net $39bn in the first six months of the year, even as the stock market rallied 46.5 per cent. India was the strongest market with net inflows of $28bn.
In spite of these wobbles, Lipper’s 2009 Asian Fund Market Almanac predicted the Asian fund industry would expand from $1,200bn to $1,900bn by 2014.