Sentiment Indicator: asset owners set for a defensive 2020

The latest survey of insurers, pension funds, endowments and other institutions shows mixed allocation plans for 2020, amid expectations of more macro and market uncertainties.
Sentiment Indicator: asset owners set for a defensive 2020

As 2020 looms, a welter of political noise and tension leaves the investment outlook for the world uncertain at best. From the political theatre of Washington DC to the chaos sweeping the streets of Hong Kong – and many other places in-between – unease is rife.

The ongoing US-China trade war has a lot to answer for, and the IMF has warned the global economy could slow further if it doesn’t ease soon. It cited Brexit-related disruptions and an abrupt aversion to risk in financial markets as two other downside risks.

These concerns prompted the multilateral agency in October to cut its global growth forecast for 2019 to 3%, a level that is 0.3% lower than six months earlier and its slowest pace since the 2008/2009 crisis. The IMF believes 2020 will see more robust global growth, but it still revised its prediction for the year down from 3.6% to 3.4%.

Asset owners seem to share concerns about economic growth prospects in 2020. According to the latest AsianInvestor Quarterly Sentiment Indicator, any signs of bullishness from polls taken mid-way through 2019 have dissipated, especially in the economic outlook for Asia ex-Japan. Further, the risk of continued trade tensions is outweighing fears of global recession or geopolitical instability.

A more defensive stance is probably inevitable against this backdrop. This reflects the views of the asset owners in the region who responded to this final sentiment indicator of the year. They displayed a mix of caution and indecision in shaping their portfolios across markets, asset classes and investment themes for the duration of next year.

For instance, there is little consensus over whether they will increase tactical exposure over the next six months to emerging market (EM) or developed market equities, or to local currency EM bonds or G3 debt.

Additionally, while 82% of poll respondents say they will engage more defensive or hedging investments in 2020, there is division over how they will implement these plans. Asset owners are fairly evenly split between buying more US Treasuries, allocating larger amounts to traditionally defensive stocks, using more derivatives, or simply hoarding cash to sit on the side-lines.

For life insurers, for example, a BlackRock study released in October emphasised intentions to diversify risk via derivatives, more specialised fixed income mandates and private assets.

“While at an aggregate level the risk profile may largely stay the same, the way in which the components in the portfolio interact starts to be more dynamic,” said Mark Konyn, AIA’s group CIO, in the report.

At the same time, Paul Carrett, group CIO of FWD Group, recently told AsianInvestor that his team has a “strong conviction regarding the usefulness of derivatives”.

Meanwhile, the Hong Kong Housing Society is embarking on a de-risking drive that will see it cut its long-term equity exposure and prioritise passive investments, said Alan Liu, head of treasury, at an industry event in Asia.


Yet cash is king for Jang Dong-hun, CIO of Korea’s Public Officials Benefit Association (Poba). He told AsianInvestor in early November that the pension fund had maintained a comparatively high cash level since 2018, given the latter stage of the market cycle. For 2020, the fund might require even more liquidity to hedge its FX exposure, he added.

This quarter’s  sentiment poll revealed there is more clarity over appetite for alternatives in 2020 – nearly half of respondents said they prefer private debt, followed by infrastructure, real estate and private equity. This is in line with Poba’s strategy, for instance; it recently said it planned to commit $250 million to five private debt funds.


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