Asset owners discuss geopolitics, interest rates as Trump 2.0 era looms
Geopolitics. China and emerging markets. US interest rates. Add to the mix a stunning US election outcome.
Asset owners and other industry experts discussed the implications of all these issues at AsianInvestor’s 14th Southeast Asia Investment Forum in Bangkok on November 8.
CDPQ’s managing director and regional head of Asia Pacific, Leong Wai Leng, said there could be a mixed impact for China and other players on the global stage post US elections.
For China, "there's really not a significant difference between a Democrat win versus a Republican win,” Leong said during a panel discussion at the forum.
She said financial markets had already priced in the US elections.
In a remarkable political comeback that has sent ripples through global financial markets, Donald Trump reclaimed the US presidency four years after leaving the White House.
The 78-year-old's victory on November 5, which came after a notably turbulent campaign period has prompted investors to begin recalibrating their expectations across multiple fronts.
Heading into 2025, Leung expects increasingly geopolitical tensions will become a key issue for investors.
“... there will also be some changes with Trump coming on board," she noted.
CAUTIOUS ABOUT CHINA
Martina Watcharawaratorn, head of investment strategy at KAsset, also said the results of the US elections were anticipated well in advance judging by the reaction of financial markets.
She also believes China is better prepared to handle a second Trump administration, noting that there is growing demand from Thai investors to diversify their portfolios with Chinese equities.
“I think China already knows how to handle the trade war. I think the economy itself already knows how to divert or reroute trade to other countries, exporting to emerging markets,” Watcharawaratorn said.
Market experts have previously told AsianInvestor that they expect the US election results to shape China's policy response, with a Trump victory potentially sparking fresh trade tensions.
Beijing is particularly concerned about the former President's promise of new tariffs that could severely impact Chinese export growth.
Chinese stocks have pulled back from the highs they reached following Beijing's stimulus announcement in late September.
RATE EXPECTATIONS CHANGE?
Financial markets also appear to be reassessing their Federal Reserve policy expectations in light of the US election results.
Many observers believe the anticipated path of US rate cuts in 2024 might need adjustment, as markets weigh the potential impact of possible policy changes on inflation trends.
CDPQ’s Leong said that despite the uncertainty of how much the Fed would be cut in each meeting, the markets have already priced in the direction of interest rates.
Nevertheless, expectations of interest rates falling too much are muted.
“The market has already accepted that interest rates will remain much higher than they were five to 10 years ago,” she said.
The pension fund has 55% of its $323 billion of assets under management in private markets, according to Leong.
EM OUTLOOK
Yoshi Kiguchi, chief investment officer of Pension Fund of Japanese Corporations, said he focuses on policy and political stability while determining appropriate investments.
For emerging markets with less stable policies, Kiguchi said the pension fund would consider exposure through more liquid assets.
Illiquid investments are more attractive in countries with more stable policies and better legal protections, he added.
More than 90% of the pension fund’s portfolio focuses on alternative investments such as hedge funds, private equity and private debt, according to Kiguchi.
ACTIVE VERSUS PASSIVE
Still, the challenge in generating consistent alpha for active funds has led to a shift to passive approach over the past few decades, according to Sue Lee, director and APAC head of index investment strategy at S&P Dow Jones Indices.
“The line between passive and active is becoming more blurred, and a lot of investors who are more traditional, active managers or investors, are also using these products to really tap into the liquidity...and also for many different uses,” Lee said.
Lee still sees some potential opportunities for active management in select market segments.
She said local small-cap categories in markets like Japan and Australia, hold potential for active managers to add value and outperform the benchmarks.