Wed, Sep 18, 2019 - Page 11 News List

Local bond funds become refuge amid trade dispute

SHUNNING RISK:First Securities Investment Trust said that it is premature, however, to predict the doom of equity funds, as US equities, for example, remain strong

By Crystal Hsu  /  Staff reporter

The outstanding balance of mutual funds in Taiwan last month reached a new high of NT$3.65 trillion (US$117.61 billion) as local investors shunned risky assets and sought shelter in bond funds amid heightened US-China trade tensions, state-run First Securities Investment Trust Co (第一金投信) said yesterday.

The balance represented a 4.25 percent increase, or NT$142.15 billion, from the level recorded in July, according to the latest tallies provided by the Securities Investment Trust and Consulting Association (SITCA, 證券投信投顧公會).

Global funds flowed from risky assets to debt markets last month, as hawkish rhetoric by Washington and Beijing regarding their trade dispute unnerved investors around the world, First Securities said.

Monetary easing by central banks lent force to the movement of funds and riveted investors’ attention on an inverted yield curve for US Treasuries, the Taipei-based fund house said.

An inverted yield curve — when long-term bonds see their returns fall below those of short-term bonds — is viewed as one of the most reliable recession indicators, as nine major US recessions have been preceded by the inversion of the yield curve, First Securities said.

Cross-border bond funds last month increased 4.66 percent, or NT$17.03 billion, to NT$382.43 billion from July, while currency funds picked up 7.24 percent to NT$790.31 billion, according to data on the SITCA’s Web site.

Funds linked to real estate-backed securities rose 9.31 percent to NT$10.94 billion over the period, it said.

However, it is premature to predict the doom of equity funds, First Securities said, adding that products targeting cross-border stock investment last month staged a 10.23 percent increase to NT$1.19 trillion, bucking a 5.8 percent decline in funds chasing domestic stocks, First Securities said.

US equities, in particular, remain strong and popular, First Securities said.

Based on the history of inverted yield curves and US Treasuries, it would take 12 to 24 months for a recession to take hold, assuming that recessions are inevitable, the fund house said.

It is widely believed that the US Federal Reserve will cut interest rates today, for the second time this year, to help avert a course toward a recession.

The US-China trade row would continue to pose downside risks, as the two countries are unlikely to iron out their trade differences anytime soon, First Securities said.

The fund house has thrown its weight behind US investment-grade bonds and funds banking on artificial intelligence, saying that they are less susceptible to tariff exchanges.

Multi-asset funds fared the poorest last month as they plunged 93.36 percent to NT$40.34 billion, the SITCA said, adding that index funds have also lost popularity, shrinking 9.54 percent to NT$13.11 billion.

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