Sovereign investors prefer to hike exposure to Asia, emerging markets

Map of emerging markets in 2005. Credit: Wikimedia Commons

Nearly three times as many sovereign investors plan to raise exposure to emerging markets rather than Europe this year as the continent’s attraction wanes due to slowing economic growth and rising political risk, a study by asset manager Invesco showed.

Europe is falling out of favour with sovereign wealth funds and central banks, with nearly one third of such investors dropping the amount of funding they set aside for Europe in 2018 and a similar number planning further decreases in 2019, the survey found.

“A large chunk of Europe has negative bond yields and growth forecasts are relatively low compared to emerging markets, so from an investment perspective its less attractive. When we talk about the risks there is quite a lot of focus on euro zone politics and Brexit,” said Alex Millar, head of EMEA institutional at Invesco.

The dovish stance of the European Central Bank and other major central banks in keeping the stimulus gates open have pushed European benchmark bonds ever deeper into negative territory, spurring a fresh hunt for yield.

European politics is also weighing on investor decision-making.

Britain’s exit from the European Union is influencing asset allocation decisions for 64% of sovereign investors, the survey found, while euro zone internal politics – deemed more uncertain with the rise of populist movements and new chiefs set to take over at the ECB and European Commission – was clouding investment decisions for 46% of sovereign investors.

As a result, only 13% of sovereigns plan on raising allocations to Europe, compared to a 40% for Asia and 36% to emerging markets.

Despite concerns about trade tensions between China and the United States, China’s perceived attractiveness as an investment destination over the next three years rose compared to the previous year, the survey found.

The annual report, which is based on interviews with 139 sovereign investors and central bank reserve managers with $20.3 trillion in assets, found bonds had overtaken equities to become the biggest asset class in portfolios, averaging 33%. This is up from 30% in 2018.

“Since we started the survey seven years ago we’ve seen a consistent trending down of fixed income allocations and a move towards moving that allocation more towards private markets. What’s interesting this year is that we’ve seen a noticeable step up in fixed income allocations,” said Millar.

“There was some volatility at the end last year so equities allocations dropped, but there was definitely a feeling that as they move later into the economic cycle they were increasing fixed income or the defensive nature of the policy.”

After a challenging year due to volatile equity markets, sovereign investors achieved returns of 4% in 2018 compared to 9% in 2017, the survey found.

Reuters

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.