Investor optimism seems widespread that equities will rally next year; four in 10 portfolio managers plan to boost their allocation to risk assets and only two expect exposure to such investments to fall, according to an AsianInvestor survey*.
If the macro environment stays relatively stable, asset managers will continue to “re-risk” their portfolios selectively, says Yousuf Al Jaida, director of strategic development for banking and asset management at the Qatar Financial Centre Authority, which commissioned the survey.
“I anticipate that real, higher-yielding assets and uncorrelated asset classes will emerge as clear winners when this starts happening," adds Doha-based Al Jaida.
As for geographic bias, the highest proportion of respondents (55%) have more than 50% of their portfolios in Asia-Pacific assets – perhaps not surprising, given that most respondents are based in the region.
Yet even if you take home bias out of the picture, says Al Jaida, the Asia-Pacific region has the sustained advantages of consumer growth through an increasing population that is becoming more affluent by the day.
Commodity-rich markets such as Indonesia and Malaysia are underpinning growth and could have a significant impact on the global manufacturing industry, from electronics to cars to infrastructure. This makes Asia-Pacific an extremely sensible region to have exposure to – not surprising, then, that six in 10 plan to raise their allocation to it next year.
As for specific asset classes, equity is seen as most likely to perform best next year. Fixed income is a distant second with 13.64%, despite – or perhaps because of – the strong run it has had in the past year or so.
Many asset managers take the view that equity markets are due for a rally, says Al Jaida. Fixed income is generally viewed as expensive now, and yields are compressed, plus they have seen huge inflows this year into the latter asset class.
Meanwhile, around half (54%) of respondents have between 1% and 10% of their portfolio in alternatives, while almost a quarter (23.26%) have none. Three in 10 expect the proportion to rise next year, with none expecting it to drop, and seven in 10 saying it will stay the same.
Commodities and real estate are joint top in terms of what are seen as the most attractive alternative investments for next year, while hedge funds and private equity are in fourth and fifth, respectively.
“It’s the real asset story again and again,” says Al Jaida. “Conventional real estate funds are usually found in portfolios, and yields there are challenged.
“Money managers view the new breed of alternatives as assets that yield and are uncorrelated to the rest of their portfolios,” he adds. “Think gold, think silver, think mining and agriculture. If nothing else, the investors own the metals, mines and farms.”
*These and other findings emerged from a survey of 45 largely Asia-based portfolio managers conducted in November by AsianInvestor in conjunction with the Qatar Financial Centre Authority. A full report on the findings appears in the December issue of AsianInvestor magazine.