Investors in Asia Pacific look through election uncertainties to double down on global equities and private equity
Investors in Asia Pacific, along with their global counterparts, are looking through the short-term noise created by this year’s election cycle to harness the major trends of deglobalisation, disruption and decarbonisation by increasing their exposure to global equities and private equity, according to this year’s flagship Schroders Global Investor Insights Survey.
The landmark survey – which encompasses almost 800 investors in Asia Pacific amongst the almost 3,000 globally across the full spectrum of institutions – instead found that the impact of central bank policy (71%), high interest rates (70%) and a potential economic downturn (68%) usurped any concerns in the region about this year’s election cycle. The sentiment of investors in Asia Pacific is on par with their global peers, reflecting a concerted view that macroeconomic conditions will have the most impact on investment performance in the 12 months ahead.
Specifically, in terms of national policymaking, investors in Asia Pacific said alliances on politics and trade (50% compared to 44% globally), as well as high levels of government borrowing (31% vs 35% global), would most likely impact their investment positioning.
Do you believe that the elections taking place globally this year will impact your investment risk appetite/positioning?
Global equities earmarked for further investment
As such, 61% of investors in Asia Pacific said they are confident or very confident in achieving their return expectations for the next 1-2 years, a similar percentage to their global peers. To do so, 51% of investors in the region will increase their allocation to global equities within the next two years; the same percentage as global peers, but 40% also said they will increase their country-level equities exposure as well, which is 9% higher than the global average.
Johanna Kyrklund, Chief Investment Officer, Schroders, said:
“As an active manager, it is vital to remain focused on investment fundamentals and not the newspaper headlines. Economic activity broadly remains positive and inflation has been moving in the right direction with major central banks now cutting rates. Lower interest rates are supportive of equity values.
“The most important election is still ahead of us with Americans heading to the polls next week. However, it is crucial to remember that politics tends to play out in months and years, rather than days and this is what we have remained focused on; keeping it simple.
“The results of this survey also clearly show the tension facing central banks and policy makers as almost as many respondents are as concerned about inflation risk as they are about high interest rates. Furthermore, high public debt loads are a key concern in many major economies. Although private sector balance sheets have generally come out of the Covid era in good shape, public balance sheets remain precarious. A key risk to be cognisant of is whether growing debt piles may eventually significantly destabilise bond markets.”
Large majority of Asia Pacific investors already investing or likely to invest in private markets
Investment in private markets continues to grow, with 82% of investors in Asia Pacific already investing in private markets or having plans to do so in the next 1-2 years, similar to that of their global peers. Key reasons for allocating to private markets include greater portfolio diversification and the potential for higher returns.
More than half (53%) of all respondents in the region wish to increase allocations to private equity in the next 12 months, equivalent to their global peers, followed by 48% in renewable infrastructure equity, and 47% in private debt.
Private market investments and equities cited as best asset classes to capture megatrends
Alongside investing in equities, private markets investment is seen by Asia Pacific and global investors as a key route through which to best capture investment opportunities tied to megatrends, including the global energy transition, decarbonisation shift, and technological revolution.
About 4 in 10 (41%) investors in Asia Pacific believe equities are best placed to capture thematic investment opportunities related to disruptive technologies, followed by 36% in deglobalisation, and 26% in decarbonisation.
Similarly, 24% of investors in the region believe private markets will be best placed to capture opportunities in disruptive technologies, followed by 20% in deglobalisation, and 29% in decarbonisation.
Chris Durack, Head of Asia Pacific, Schroders, said:
“The findings show that investors in the region are willing to take on exposure to growth assets, weighing the opportunities and challenges in the current environment. A more global and diversified approach through investing in both private and public markets is also evident as a trend. In addition, with a relatively higher proportion of Asian investors also looking for exposure to country-level equities, they remain keenly focussed on investment opportunities arising in the region as well.
“The survey indicates that private assets are valued as a source of diversification, yet they can be a sophisticated asset class to navigate through. Investors must be increasingly selective and partner with specialist active managers who possess the ability to maximise value creation through sourcing, executing, and managing private assets.
“The ability to access private asset classes has improved significantly in recent years on the back of a much greater array of fund structures aimed at individual investors. We see it as a key mission for Schroders to enable individual investors to gain access to private market investments alongside their public market investments to help meet their objectives."
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