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Investment Strategy Takes Hold In Hong Kong

Mary Swire, Tax-news.com, Hong Kong

17 January 2001

Fund managers in Hong Kong say they have noticed a well-known investment strategy, called behavioural finance, become more popular in the region.

According to local newspaper Hong Kong iMail, a lot of investors have stepped in to profit from the drastic share price movements the 'irrationals' leave in their wake. 'Sentiment and emotions of investors can result in movement of stock prices,' said Patrick Ho, portfolio manager of ABN Amro Asset Management (Asia).

Generally, retail investors are most often thought to be the reason behind the erratic nature of the market as they tend to trade stocks based on news, rumours and personal opinions. A typical example to highlight is that of Morgan Stanley Capital International (MSCI), which last year announced it would remove Cheung Kong Holdings from its indices. As a result shares fell by as much as 9.4 per cent. If investors had bought stock at that point they would have seen a 19 per cent return within a month.


'Such an approach,' says Paul Pong, managing director of Pegasus Fund Managers, 'can help fund managers become more disciplined and objective, overcoming greed and fear when the market moves sharply.' In fact, behavioral finance appears to be gaining popularity in a number of global markets. The Hong Kong iMail says that over US$72bn invested in the United States last year was via the behavioural finance strategy rather than the traditional fund management approach.

Patrick Ho estimated that the turnover of a behavioural finance-based portfolio, reviewed on a monthly basis, was about 750 per cent a year compared to 100 per cent for other day trader, traditional portfolios.

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