J.P. Morgan Asset Management (JPMAM) has announced the results of its 37th quarterly survey conducted for the J.P. Morgan Investor Confidence Index (JPMICI) in Hong Kong from 1 to 26 September.

The Index is designed to reflect local investor sentiment towards the Hong Kong market over the next 6 months. The latest quarterly results show that investor confidence has been dampened, as reflected by the overall index dropping by 28 points to 95.

It is the first time the index has fallen below 100 since the 1 st quarter of 2009. The Index and all subindices have a range between 0 and 200. A number greater than 100 represents a positive outlook and vice versa.

The Hang Seng Index Sub-Index shows the largest decline, plunging 38 points to 99. The Hong Kong Investment Environment & Atmosphere and the Value of Investment Portfolio Sub-Indices plummet 34 points to 91 and 32 points to 96, respectively. Other indices also recorded declines, with the Hong Kong Economic Environment Sub-Index slipping 23 points to 92; the Amount of Investment Sub-Index losing 22 points to 100 and the Global Economic Environment Sub-Index falling 15 points to 94.

Karen Cheng, Vice President of Private Bank Distribution at JPMAM, said “The latest findings suggest that the sustained volatility in the global stock markets is casting a shadow over investors’ confidence. 55% of investors see a continuous bull-bear fight in the Hong Kong market, whilst another 44% believe that the bear market has not ended and the market will continue to adjust.”

“Among all the sub-indices, the Hang Seng Index Sub-Index recorded the largest fall of 38 points to 99. Such pessimism can be indicated by the overwhelming perception (96%) that HSI will trade at 24,000 points or below in the coming six months, with 21% even predict the index to retreat to 20,000 points or below within this period.”

“Almost three quarters of investors (73%) think volatility in stock markets will influence their investment strategy. Risk appetite reduces and the preference for cash rises. 19% of investors express they will adopt a more conservative strategy. Only 7% of investors suggest overweighting equities in the 4th quarter, as compared to 38% in the last survey, whilst 13% of investors have an JPMorgan Funds (Asia) Limited Press Release overweight in cash, as compared to only 3% in the last quarter. Over 30% of investors remain interested in income investments.”

“A balanced portfolio is helpful to cushion against market volatility. Investors are excessively pessimistic and express a tendency to withdraw from the market by holding more cash, which is the exact opposite of our advice that they should stay invested and take a long term view to navigate through market fluctuations.” “While 66% investors expect a U.S. rate hike to have a negative impact on the global market, almost 8 out of 10 predict the first hike not to happen until December or after. 57% still see Mainland China as having the highest potential for growth in 2015. Nearly one quarter are still appealed by fund investment opportunities in Mainland China under the Mutual Recognition of Funds. 79% of investors expressing interests in China fund market prefer equity funds.”

Ben Luk, Global Market Strategist at JPMAM, said “Concerns over China and emerging markets have hit global growth expectations and risk assets this summer, but we believe developed markets should withstand external shocks as domestic demand remains resilient. Despite softer global growth and lower inflation expectations, we remain positive on equities over bonds.”

“Recent U.S. economic data has been weaker than expected, but we believe the medium term outlook for the U.S. economy remains strong, mainly driven by the domestic economy.”

“China continues to be a two-speed economy, with the manufacturing sector dragging on headline growth, while the service sector remains robust. Given the weak global trade cycle, we believe China will continue to pursue targeted fiscal stimulus to boost infrastructure investment to offset weakness in the manufacturing and real estate sector.”

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 atmosphere, (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.