Investor Sentiment Indicator: Insurers eye EM assets

The first few months of 2019 have certainly turned out better than the doomsayers were predicting in the wake of market performance in December.

As of the start of April, global equities had gained 13%, according to the MSCI Word index, helped by the reluctance of central banks in the developed world to reverse the easy-money train. 

Even China, which has been in a wrangle with the US over trade tariffs and is experiencing a relatively sluggish economy for the first time in many years, has seen a jump of 34% in its main stock index, the CSI 300, over the same period.

Yet nobody can realistically pretend to know – or even hazard a guess – about what will happen next in such a topsy-turvy macro-economic and geopolitical backdrop. 

Today’s investment landscape faces an unprecedented mix of influences. This has manifested itself in terms of the vast number and pace of fluctuations affecting decision-making, combined with the high levels of unpredictability, the wide variety of factors to consider and the striking lack of clarity about how to interpret what we see.  

It is little surprise, then, to hear the VUCA acronym (volatile, uncertain, complex and ambiguous) used so frequently to define the world around us.

In a bid to provide some direction for key asset owners based in Asia Pacific, AsianInvestor has developed our new Quarterly Sentiment Indicator. It aims to offer an invaluable insight of how investor peers in the region view the economic environment today and of their approach to asset allocation across markets, asset classes and investment themes.

This inaugural benchmark gauges feeling solely among insurance companies, we intend to expand it next quarter to also represent the forward-looking views of a variety of the leading pension funds across the region, as well as key government entities.

KEY TAKEAWAYS

• Local bias seems clear among participants; although there is a generally neutral-to-bearish outlook for the global economy for the rest of this year, there are more bulls when Asia is considered. In fact, nearly half of respondents are optimistic about the region’s economic prospects.

          WHAT'S YOUR OUTLOOK FOR THE GLOBAL ECONOMY IN 2019?

• This partly explains the broad expectation among insurance investment executives that they have at least a small chance of exceeding their risk-adjusted investment return goal over the next 12 months. Only a small number don’t think they will do so (or, perhaps, are honest enough to say so), though equally only a small proportion are very bullish.

DO YOU THINK YOU WILL EXCEED YOUR RISK-ADJUSTED INVESTMENT
RETURN GOAL OVER THE NEXT 12 MONTHS?

• Confidence in emerging markets is also clear within insurance firms. While equities are the preferred asset class for taking tactical exposure over the next six months, local currency EM debt is also a target for several investors. Consistent with these views, developed market stocks and bonds seem set for the bigger sell-off during the same timeframe.

WHERE ARE YOU MOST LIKELY TO INCREASE TACTICAL EXPOSURE
OVER THE NEXT SIX MONTHS?

• The geographic preference shifts when it comes to alternatives, however. More than half of respondents are looking to get exposure via developed markets to assets such as private debt (in highest demand), as well as private equity, real estate and infrastructure. Regulatory certainty, accessibility and availability of assets are all key decision-making factors for insurers.
• Insurers continue to be largely “active” in their portfolios; passive investments comprise between 0% and 5% for half of those surveyed. Only 22% of respondents said they had 10% of more of their current portfolios invested in more passive products.