COVER STORY: National Pension Service of Korea and the Netherlands' APG Asset Management have allied to invest in alternative assets. The chief investment officers of both explain why they did so GLOBAL ALLOCATORS: The chief investment officer of Denmark's teachers' pension fund talks about Asian real estate investment plans FALLING FIXED INCOME: The collapse of interest rates is forcing investors to plan larger portfolio shifts CHINA'S RISING APPEAL: A combination of a robust economy and strong equity performance is attracting the attention of international asset owners CLIMATE EMERGENCY: Asia Pacific institutions are not matching action on ESG to their loud words INSTITUTIONAL EXCELLENCE AWARDS: We reveal which of Asia Pacific's institutional investors most stood out across a difficult and trying year for investing, and keeping their staff safe and motivated
Talk to investment prognosticators and it seem investing in 2021 will be a doddle.
To buy: emerging markets (especially China), plus infrastructure, including data centres and e-commerce logistics, and environmental, social and governance-friendly companies. To sell: US value equities, government bonds, and commercial property.
If that seems overly simple, it’s because it is. The favour of emerging markets is in large part down to an expectation that surging economic activity pumps capital and lifeblood into markets that suffered during 2020. Yet this flood of capital, even if it emerges, will likely be discerning – not every market will benefit.
Added to that, most emerging markets won’t see major supplies of Covid-19 vaccines for the entirety of 2021. That will crimp their recoveries.
Similarly, the appeal of infrastructure will require the incoming US president and what will likely be a divided Congress to agree on a big revitalisation bill to fund the rebuilding of bridges, tarmacking roads and laying down new rail-lines. Few people have lost money by betting against the intransigence of Washington, particularly during this turbo-charged era of polarisation.
Meanwhile, there is no certainty ESG strategies will excel during market rises. They might well prove to be a better risk mitigator than alpha indicator.
That’s not to say these ideas are bad. They might well offer gains, albeit with hiccups on the way. However, asset owners, particularly those in Asia, might do well to balance optimistic investments with allocations to assets that offer more certain returns.
One suggestion: Chinese debt. The country’s key interest rate is well above those of western nations and while defaults have started rising it’s hard to imagine core banks, funding vehicles of key provinces or larger state companies falling into trouble.
Another would be high quality cyclical companies, which should rebound as nations begin lifting lockdowns. Investors might well want to consider which blue-chip equities look unfairly oversold, and which fallen angel assets will soar again.
2021 will hopefully prove to be less volatile than the past year. But with interest rates at all-time lows and capital flows likely to be fickle, it makes sense for investors to combine rose-tinted investing with a firm gaze on the bottom line.