"Stay-Put" Investors Cite Lack of Clear Buy Signal and Market Pessimism Despite Encouraging Signs, Survey Shows
 
Most Hong Kong investors are not increasing their investments despite rising markets and improved economic data, mainly because they are either waiting for a clear buy signal or are pessimistic about the financial recovery, a Charles Schwab survey has revealed. However, a minority of proactive investors are increasing their investments in response to poor cash returns and the short-term bull rally.

Conducted in partnership with global research firm Synovate, a poll of Hong Kong investors showed that:

•  71% of Hong Kong investors have not changed their level of investment over the past six months.
•  18% of investors have increased their investments over the last few months.
•  11% of investors have decreased their investments over the past six months.

The results show that uncertainty is keeping many investors from increasing their investments, despite the poor returns offered by cash deposits. Of the “stay-put” investors, the main reasons given for inaction are lack of a clear buy signal (28%); having no spare money to invest (22%); and being pessimistic about the financial recovery (14%). From the survey, only 4% of “stay-put” investors cited a lack of trust in financial products as a reason for not investing further.

These investors may be better off adjusting their risk appetites and considering equity market opportunities, says James Sun, Managing Director, Charles Schwab Hong Kong.

“Investors who sit on the sidelines because of fear and uncertainty are potentially losing out, especially as cash returns in Hong Kong are microscopic. We would advise Hong Kong investors to consider re-engaging with the equity markets,” says Sun.

Notably, the leading reason that more proactive investors cited for increasing their investments was the belief that poor cash returns have made it necessary to take risk again (36%). A further 19% feel that market sentiment has improved and don't want to miss out on the short-term bull rally, while 10% find current valuations attractive for the medium to long term.

“There are many good reasons for Hong Kong investors to diversify out of cash. With our experience in the U.S. market, we would also urge investors to take a good look at what the U.S. stock market has to offer,” he adds.

Investors mixed on U.S. economy outlook

The survey revealed that Hong Kong investors are evenly split on their outlook for the U.S. economy. 49% believe the U.S. economy is “stumbling and moving sideways”; 24% believe that the U.S. economy is “at the early stages of recovery”; while 24% believe that it is “still in deep trouble”.

“Though Hong Kong investors have concerns about the U.S. economy, our expert view is cautiously positive on the US stock market. Also, we believe that U.S. equity exposure is a vital part of a well-diversified portfolio, and urge Hong Kong investors to talk to us about how they can use the U.S. market to diversify and add value to their portfolios,” says Sun.

Unfamiliarity with U.S. companies need not be an issue, adds Sun. Instead of picking stocks, investors can work with their advisors to identify industries or sectors that are expected to outperform the market in the near term. Schwab's proprietary Sector View research, for example, recommends industrials, materials and information technology as sectors that are likely to outperform the wider market.

The Investors Sentiment Survey was conducted using AsiaBUS, a pan-Asian omnibus service developed by Synovate. 752 interviews were carried out in September 2009 with Hong Kong residents aged 25 to 64. Respondents were interviewed by telephone and were asked about their attitudes and sentiment towards investing and the U.S. economy.