A QUICK resolution to the US-Iraq war is expected to enhance the demand for equity funds while re-ducing demand for bond and fixed income funds, according to industry players.
AQccording to Pacific Mutual Fund Bhd CEO Michael Auyeung, before the war, the industry had witnessed the steering of new investors' money towards bond funds from equity funds, in line with the general risk aversion among investors. With the outbreak of the war, the demand for equity based funds was expected to pick up again.
His view was supported by Pru-dential Unit Trusts Bhd CEO Mark Toh who said that expectations of the impending war had already been impacting the industry “in the last six months as there has been the flight of funds from equity to the more stable fixed income/bond type of funds.”
“Investors generally loathe taking any risks at this time, preferring to wait for the outcome of the war. However, we believe that the market has already factored in the possibility of this war and because we believe that the downside in now limited, astute investors are now beginning to capitalise on the existing cheap valuation of the market,” Toh said.
He said that if the war was a short one, the company expected in-vestors to begin switching their investments to equity funds and there would be an influx of money into fixed income funds if the war drags on.
TA Unit Trust Management Bhd CEO Richard Chua expects investors to switch from cash and bonds to equities during and after the war.
Chua said that fortunately, the company only experienced negligible redemptions prior to the war and expects this to continue until the end of the war. Sales, however, had slowed for the company's last two to three funds.
On the impact of the war on the company's business, Auyeung said that sales of Pacific Mutual's funds, which are largely equity-oriented in nature, have somewhat slowed down. But, he added, business would rebound strongly in line with the equity market once the outcome of the US-Iraq war became evident.
On contingency measures, Toh said: “Our products are essentially meant for investors who have a medium to long-term view. There-fore, the duration of the war should not affect one's long- term investment goals. Investors should know that short-term fluctuations are to be expected. Because investors should have a medium- to long-term view, they should stay disciplined to their time horizons and ultimate objectives.”
Chua said the TA Unit Trust stra-tegy of having its sales agents and fund manager travel around the country briefing investors on the market environment and measures taken by the company in the event of a war had resulted in very low unit trust redemptions.
Our post-war strategy, he said that the company held the same view in the short and medium-term.
“We believe there is a lot of value in the market now and, we see good and healthy growth in the unit trust industry over the next one to two years,” he said.
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