The Asian market, led by China, is expected to be the best-performing region this year amid a muted global economic outlook, according to the 2023 Investment Managers Outlook Survey, released on Jan 11.
Despite continued concerns over inflation, there is optimism on Asian equity and credit markets with 70% of the respondents expecting a solid recovery in equities.
“After three years, China’s relaxation on its restrictive Covid-19 policy will bring about immediate and substantial impacts to both its economy and the Asian market in general. Fund managers see the event as the light in an otherwise gloomy 2023 marked for a global recession,” says Rajeev De Mello, chairman of the IMAS Development Committee. “Furthermore, concerns over the US-China tensions are softening as there seems to be a period of calm after many years of stress.”
The survey, conducted by the Investment Management Association of Singapore (IMAS), represents the views of fund houses with combined assets under management of approximately US$30 trillion globally. Conducted online in December 2022, the 2023 survey heard from 53 respondents, comprising mostly C-suite personnel of fund houses in Singapore.
To these leaders, the three biggest threats facing their investment houses this year are economic uncertainty keeping investors from investing their cash, poor returns in 2023 and further margin erosion.
This time last year, the three biggest concerns weighing on leaders’ minds were a significant market correction across major asset classes, a shortage of required skills to support future industry growth and further margin erosion.
See also: Market correction, lack of future-ready skills biggest threats to investment managers here: IMAS
Thanks to higher yields, appetite has re-emerged for fixed-income strategies, as uncovered by the survey. Bond demand is going up across the spectrum including global bonds, corporate bonds, income strategies, fixed maturities and private debt. However, investors are still cautious about allocating to emerging market local-currency bonds.
ESG top in mind
Environmental, social and governance (ESG) remains a top driver of growth for the next three years, according to IMAS’s survey.
The survey indicated that respondents believe an increase in ESG investments, rising product innovation and the growth of millennials as a segment will be the key drivers of future growth for the investment industry in the coming years.
On that note, newly appointed chairman of IMAS, Jenny Sofian, says: “In this new era, product innovation and ESG concerns are key considerations for the industry. Asset managers who prioritise these areas will be better positioned to gain new market share going forward, and also in the fast-growing client segments, such as the millennial group.” Sofian is also CEO of Fullerton Fund Management.
ESG is still poised to be top of mind for investors in the foreseeable future. The survey found that 62% of the funds are looking into developing business lines around sustainable finance to differentiate their business in 2023.
In terms of implementation, fund managers cite a lack of data standardisation as a key challenge in the ESG space. Analysts are not fully able to compare company performance.
Nonetheless, there is a growing interest in the adoption of fintech solutions to improve ESG datasets and tools. In general, the high degree of economic uncertainty is keeping investors from investing their cash, according to 88% of the respondents.
Persistent inflation, a high risk of recession, a major war in Europe and very poor investment returns in 2022 all contribute to a greater sense of risk aversion. There is a general consensus that inflation will remain “sticky” in 2023 with core inflation in the US likely remaining above 3%, which is significantly above what households and investors have been used to before the Covid crisis.
In addition, over 60% of the respondents believe that the global economy will enter a recession this year with the global GDP growth at less than 1.2%.
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“After aggressively raising interest rates in 2022, the US Federal Reserve has indicated that it will be slowing the pace of hikes in 2023. The Fed has already stepped down from a pace of 0.75% hike per meeting to an increase of 0.5% at the December FOMC meeting. Consequently, fund managers opined that Asian currencies including the Singapore dollar will appreciate against the US dollar by the end of the year,” De Mello adds.
Equity and corporate bond markets will find support when central banks end their rate hiking cycles as valuations have improved after the market swoon in 2022.
45% of the respondents expect the US dollar to depreciate between 5% to 10% against the Singapore dollar while 41% of the respondents believe the greenback will drop by a similar quantum over the Chinese yuan.
Based on currency fundamentals, the US dollar reached significantly overvalued levels during the second half of 2022.
As the European Central Bank continues to tighten monetary policy and the Bank of Japan exits its negative rate policy, the attraction of the dollar will wane, adds IMAS.
