APAC institutions back equities, private markets ahead of US elections
Institutional investors in Asia Pacific plan to increase exposure to growth assets and private markets even as they gear up for short-term noise from the US elections that might create uncertainties around globalisation and decarbonisation, according to a recent survey by Schroders.
Equities and private market investments were chosen as the best asset classes to capture opportunities around the global energy transition, decarbonisation shift and technological revolution, the survey found.
“The US presidential elections have always been extremely relevant for the world but this time around it might be more so than ever,” Alicia García Herrero, chief economist for Asia Pacific at Natixis CIB, told AsianInvestor.
Despite expecting short-term turbulence, investors are focused on harnessing long-term trends.
More than half of institutional investors in the region plan to increase their allocation to global equities in the next two years, while 40% of them plan to increase their exposure to country-level equities, according to the survey.
Respondents included pension funds, insurance companies, family offices endowments and foundations and other institutional investors. Among the 2,830 respondents, 795 of them are based in Asia Pacific.
The survey also showed that a large majority of investors (80%) in Asia Pacific are already investing in private markets or have plans to do so in the next one to two years due to the need for greater portfolio diversification and potential for higher returns.
CHINA VERSUS US
The relationship between the world’s two largest economies -- the US and China -- will also be in the spotlight as a Trump administration threatens to usher in new rounds of tariffs on Chinese exports, which could stoke inflationary pressures.
Although there is bipartisan consensus among Republicans and Democrats to adopt a tougher stance toward Beijing, how such containment will take shape is bound to be quite different with Donald Trump or with Kamala Harris (the two presidential candidates), according to García Herrero.
“While it is not yet sure whether Harris will follow Biden when it comes to China policies, one could argue that Harris brings more certainty to the course of action, namely further containment, especially on the technology angle," she said.
"Trump is more of a wild card but with potentially more space for negotiation."
While there are some concerns about election results triggering another round of massive capital outflows from China, portfolio investments have already been affected over the past few years, according to an October 31 note from Natixis CIB.
There will likely be more limited impact through the portfolio financial channel, the note said.
Despite a recent surge in Chinese equities, a sustained recovery will hinge on the country's policy response to the outcome of the US elections, with investors watching for new stimulus plans to boost the economy.
Still, the Schroders survey also showed that the impact of central bank policies, high interest rates and a potential economic downturn exceeded concerns in the region about this year’s election cycle.
“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,” Johanna Kyrklund, chief investment officer of Schroders, said in the survey.