Optimism has risen strongly about fundraising opportunities in Asia’s wholesale/retail market, and to a lesser extent in respect of insurance companies, according to the 2016 annual asset management survey* conducted by AsianInvestor and law firm Clifford Chance (see first graph below).
As for where those flows are likely to go this year, Asia equities, infrastructure and global equities were seen as the most likely destinations. However, listed stocks have fallen heavily in terms of popularity over last year, whereas fixed income is seen as gaining favour (see second graph below).
Asked which asset owners would provide asset managers with the biggest flows to asset managers, respondents again voted pension funds, sovereign wealth funds (SWFs) and insurance firms as the top three segments.
However, pensions and SWFs both are seen as likely to offer weaker fundraising opportunities than last year, while insurers rose up the ranks, leapfrogging sovereign funds into second place. This is line with the fact that insurance companies in Asia are increasingly being allowed to invest offshore and are growing more inclined to do so; Chinese insurers are seen as a particularly big opportunity.
The retail/mass-affluent/wholesale segment saw an even sharper rise than insurers, reflecting optimism about the rise in disposable income in Asia. Indeed, research published late last year by consultancy Casey Quirk (recently acquired by Deloitte) has suggested that individuals are likely to drive growth of Asia's investment industry more than institutions.
The belief that SWFs will not play such a big role in funneling business to asset managers will come as no big surprise. Given the prolonged low oil price, central banks have been drawing down SWF reserves – crude is the driver of much sovereign wealth.
Playing it safe
The view on which assets Asian institutional investors will allocate to is decidedly more mixed than in 2015. While there was a broad consensus that equities both in Asia (54%) and globally (37%) would top investment flows last year, respondents painted a more conservative picture this time. Moreover, an expected rise in global fixed income flows suggests a flight to safety and a way to mitigate market volatility.
As for which markets would be overweighted for growth, there was no clear winner. Again, given the anxiety around China’s economic growth, it seemed investors would rather hedge their bets. This may play into the hands of those Southeast Asian countries posting healthy GDP growth, such as Indonesia and Vietnam, both of which saw a rise in expected flows.
*225 respondents were polled in May and June; they included asset managers and asset owners, fund distributors and other investment industry participants. The full survey and write-up appears in the June issue of AsianInvestor magazine.