The seemingly never-ending rollercoaster for economies and markets has sharpened the focus of the region’s leading asset owners on the need for long-term capital growth and portfolio diversification.
To achieve these two goals this year, there appears to be a preference among investors for listed securities in Asia and private market assets in North America. At the same time, the influence of technology as well as environmental, social and governance (ESG) factors is stronger than ever, both in terms of target assets and the investment process.
This is all based on the views of 105 senior investment executives from sovereign wealth funds, government entities, insurance companies, public and private pension funds, endowments, private banks and other asset owners across the Asia Pacific region.
They shared these insights as part of a survey by AsianInvestor, in collaboration with S&P DJI, conducted between March and April 2021, covering Hong Kong, Taiwan, Australia, South Korea, Japan, Singapore, Thailand, Malaysia, Indonesia, the Philippines and India.
Broadly, the consensus tallies with the relatively robust and fast recovery that S&P DJI sees as a driving theme for Asia, certainly compared with other parts of the world.
“This has been supported by government stimulus, accommodative monetary policy and large-scale investments. The recovery has been the key influence on rates, equity markets and valuations across the spectrum of asset classes,” said Tianyin Cheng, senior director, strategy indices at S&P DJI.
Against this backdrop, positioning for transition continues to dominate allocation decisions for many investors.
This reflects the importance of themes of tactical exposure for many respondents in 2021 – being more prominent than geographical diversity or taking a sector focus. And when investing in themes, respondents believe the highest risk-adjusted returns this year will come from ESG (26%), closely followed by transformative tech (21%) and healthcare and biotech (20%).
In line with the commitment to sustainability, respondents ranked the process of incorporating ESG factors via additional data and analytical tools as their preferred route to enhanced returns in a post-pandemic landscape.
“We have witnessed the focus on climate change for the last few years, but it is now at a turning point,” explained Cheng. “It is now about action rather than just talk, with investment money supporting the transition to a low-carbon economy.”
At the same time, implementing technology and better systems such as artificial intelligence and big data solutions is also high on the priority list for investors, as is their intention to more closely scrutinise the performance of external active managers. These approaches are expected to be much more effective than traditional ones, like taking on more risk by going down the credit curve or hiring more investment staff.