As long-term investors, retirement funds can sit out any market volatility. But there are concerns that elements of the current geopolitical turmoil could have economic implications for years to come.

Among the biggest concerns are trade tensions between the US, China and other nations; low interest rates for potentially years to come; and late-cycle fears of a potential downturn in the US and wider world.

AsianInvestor asked Wim Hazeleger, APG Asset Management’s Asia-Pacific chief, for his take on how such issues could affect the Dutch institution's regional portfolio – and which assets the €532 billion ($589 billion) institution is focusing on as a result.

Wim Hazeleger

Q. What’s your view on the long-term dynamic between the US and China, and do you see any potential adverse effects or opportunities for your portfolio?

It is fair to say that the probability of continued strained relations and further protectionism distorting world trade volumes has increased in the current state of play.

Continued trade friction between the two nations will exacerbate the fall in global trade volumes, [affecting] global GDP and equity markets negatively, whilst cross-border investment flows may also be impacted in a protracted dispute. This scenario would see central banks globally continue operating a loose monetary policy.

Real estate markets will remain resilient given the favourable quantum and low cost of funding and the high weight of capital seeking to invest in real assets with relatively higher yields.

On the equities side, we see opportunities in the emerging markets universe, but it requires a deep focus on stock selection to avoid the many pitfalls.

Q. Given the large market uncertainty and volatility globally right now – not least thanks to Donald Trump’s trade wars – what are your main concerns about how APG’s portfolio could be impacted in the coming few years?

The main concerns would be the introduction of short-term policies that tip the global economy into recession or a geopolitical miscalculation that takes us into a more serious conflict. However, we believe that our preference for good businesses with a protective moat and a steady growth profile should prove resilient to these risks.

Q. How worried are you about the lateness of the current cycle and a potential US or global downturn? How are you responding to this – and a potentially longlasting period of low interest rates?

Business cycles generally do not die of old age; they tend to turn when monetary or fiscal policies run out of steam. As we see monetary policies broadly used up, the global economy could benefit from more fiscal spending. However, this is easier to do in countries with strong currencies and fiscal space.

For our equity portfolios, we continue to look at our markets for strong businesses that will remain resilient through different market environments.

Most real estate markets are in a later cycle. However, with risk-free rates around the globe again on a downward trend, valuations will remain intact in the short-to medium-term, extending the current cycle and largely buffering a material decline in US and global growth.

A lower-interest-rate environment provides an opportunity for companies to recycle assets and move up the portfolio value chain. And M&A activity will likely rise based on both the lower cost of debt over a longer period and a generally favourable cost of equity for listed companies.

Lower global growth and subdued inflationary expectations will continue to drive demand for yield and hence real asset exposure.

Q. How concerned are you about slowing Chinese growth?

We are less concerned about [this], given the fiscal, monetary and policy tools at the disposal of the Chinese government to support growth.

The forthcoming Winter 2019 issue of AsianInvestor magazine will feature an in-depth interview with Wim Hazeleger about APG Asset Management's Asia investment strategy and expansion.