Asia remains favoured destination for European and Asian investors
- Majority of institutions in Europe and Asia will increase allocations to Asia in next three years
- Institutions need to move away from traditional indices to capture true emerging market opportunities
- Market liquidity and economic growth rates to drive future allocations in emerging markets
Hong Kong, 14 March 2011: Financial institutions in Europe and Asia remain bullish on Asian equities and bonds with more than half indicating they will increase their investment into the region in the next three years, a Fidelity International survey has found.
The survey was conducted by Greenwich Associates in January and was the result of over 100 interviews with sovereign wealth funds, government-affiliated investors, pension funds and insurance companies in Asia and Europe with assets under management totaling US$1.6 trillion.
“The survey found that 56 per cent of Asian institutions and 58 per cent of European institutions plan to increase their allocations to Asian equities over the next three years and the same trend applies to bonds - over half of the institutions in Europe will increase their allocation to Asia corporate bonds and 58% of Asian institutions will increase their allocation to Asia Government bonds,” said Fidelity International’s Mr Carlo Venes, Head of Institutional Business, Asia.
“This confirms the extent of global confidence in the Asia growth story amongst institutions and is often an important, leading indicator of the future direction of retail flows.
“Asian institutions are now viewing European government bonds as riskier than Asian government bonds which was unthinkable a few years ago; reflecting the resurgence of Asian economies and the troubling sovereign debt crisis that continues to plague Europe.”
When investing in emerging markets, the vast majority of institutional assets in Asia (96 per cent) and in Europe (92 per cent) are allocated according to traditional indices but many of the survey respondents are now questioning the relevance of these benchmarks given the fast pace of change in emerging markets globally.
“Institutions universally rely on traditional benchmarks to allocate their assets but these indices have a strong bias towards developed markets, specific sectors and large cap companies which is becoming increasingly irrelevant for many institutions if they want true exposure to emerging markets,” explained Mr Venes.
“Over a quarter of Asian institutions in the next three years will attempt to do just this by directly investing in countries such as Asia, Korea, Taiwan and ASEAN as they try to compensate for this shortcoming. However, only 12 per cent of European institutions are planning an initial foray into country allocations, mainly China and India, so they have the potential to fall short of the desired exposure they need to the greatest growth opportunities.”
“In addition to country specific allocations, the majority of the institutional investors in Asia prefer an active and fundamental approach to investing in emerging markets and expect their assets to be managed with a moderate to high level of active risk. This allows the asset managers to go beyond the house hold names reflected in the benchmarks, and capture off benchmark opportunities that exist in the emerging markets, which in many instances are still under researched compared to developed markets”
When determining allocations to global emerging market equities, institutions cited depth and liquidity of markets as well as economic growth rates as important factors that will continue to drive their preferences.
“The majority of European institutions (60 per cent) place a much higher emphasis on the relative market capitalization of a region or country whereas Asian institutions (80 per cent) are more likely to focus on economic growth rates when designing their allocations,” said Mr Venes.
“Institutions in developed countries like portfolio managers to build a portfolio that represents the market today but in Asia it's quite different - there is much greater emphasis on building a portfolio that reflects the economic landscape that will unfold in the future.”
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About Fidelity International
Fidelity International provides investment products and services to individuals and institutions in the UK, continental Europe, the Middle East and Asia Pacific. Established in 1969, the company has over 5,000 staff in 23 countries and manages or administers client assets of US$300.5 billion as at 31 December 2010. Fidelity has over 7 million customer holdings and manages more than 750 equity, fixed income, property and asset allocation funds. Fidelity’s fund managers receive research from one of the largest proprietary research teams, covering 99% of the world’s largest listed companies. Fidelity International is an independent company which is privately owned.
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Tel: 852 2629 2800