Asian investors to increase alternatives allocation

Febrile European geopolitics, unresolved trade dispute means that investors are broadly in risk-off mode

Asian institutional investors regard alternatives as the most attractive asset class going in to 2020 as concerns linger over economic and geopolitical risks in Europe and the US, according to Principal Global Investors’ recent poll of institutional investors at its Asia Summit in Singapore. The summit was attended by around 80 institutions, family offices and private banks from across the region.

Asked which “grey swan” event they anticipated would occur over the next 12 months, 42% of Asian institutional investors predicted a significant deterioration in one or more European economies, with a quarter (24%) expecting a “shock outcome” in the US Presidential elections.

By contrast, only 16% and 18% respectively foresee a major inflationary spike due to trade tariffs and supply chain disruption or a significant deterioration in one or more Asia economies.

Half of respondents (49%) said that, across all major asset classes, they were most likely to increase their allocation to alternatives. Twenty-nine per cent plan to bolster the multi-asset component of their portfolio, while 9% say they are likely to increase their fixed income weighting and only 6% said the same for equities. Within equities, two thirds (64%) expect growth stocks to outperform value over the next five years.

Kirk West, head of International Offices, Principal Global Investors, comments: “For investors navigating current market conditions - an environment where a single tweet can change the market direction and momentum - it is not just the risks themselves that are challenging but also the increasing velocity at which risks can move from peripheral threats to portfolio impacts.”

“Against a backdrop of Brexit, talk of Presidential impeachment and ongoing trade tensions, the unpredictability of European and US politics is having an impact on global investors’ appetite for risk assets in developed markets. As a result, institutions in Asia appear to see greater opportunities in the decorrelated returns and risk profile that can be found in alternative asset classes and the diversification offered by multi-asset solutions,” he adds.

Seema Shah, chief strategist, Principal Global Investors, says: “Recent key economic data has been fairly weak and the dual effects of febrile European geopolitics and an unresolved trade dispute between the world’s largest economies mean that investors are broadly in risk-off mode. We are now reaching the limits of monetary policy as an economic defence mechanism and a portfolio shock-absorber meaning that asset allocation choices to mitigate risk become even more important.”

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Date

6 Nov 2019

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