Half of Australian institutional investors believe that the growing influence of geopolitical bad actors and central bank policy are the two biggest economic threats of the next 12 months.
That’s according to new research from Natixis Investment Managers, which also revealed that 45 per cent of local institutional investors believe a recession is inevitable in 2024.
After geopolitics and interest rates, the next biggest threats identified by Australian institutional investors included declining consumer spending (46 per cent), the Chinese economy (41 per cent), and relations with China (32 per cent).
“Confronted with global conflicts, high inflation, and continual rate rises this year, Australian institutional investors have had a lot to deal with – unfortunately, it looks like 2024 will also be filled with challenges,” commented Louise Watson, country head Australia and New Zealand for Natixis IM.
“Geopolitical forces and macro-economic uncertainty remain a concern for markets globally and the need to build resilient and diverse portfolios continues to be of critical importance for institutional investors.”
For the year ahead, local institutional investors were found to only be bullish on the bond market (69 per cent) and private debt (73 per cent), in line with sentiment globally.
But Natixis noted that Australian institutional investors only had 21 per cent of their portfolios in fixed income, compared to 38 per cent for their global counterparts.
Fifty-nine per cent of local institutional investors are projecting higher levels of volatility for equity markets in 2024, while 39 per cent anticipate an uptick in volatility for bonds.
Globally, Natixis found that private assets continue to be a top alternative allocation choice for institutional investors. Two-thirds of those surveyed worldwide said there is a significant delta between private and public assets.
“However, after a long run of private investments, 59 per cent of institutional investors say that the popularity of private assets is making it hard to find deals,” the firm said.
“With this in mind, teams are building more safeguards into their strategy and 72 per cent say they have stepped up their due diligence to respond to concerns around deal quality.”
Meanwhile, two-thirds of institutional assets were found to be allocated to active strategies, the same as in 2022, with institutions projecting they will have 66 per cent invested in active strategies over the next three years.
Sixty-six per cent of institutional investors reported that active investments in their portfolios outperformed their passive investments during 2023.
Natixis’ research also found that 55 per cent of institutional investors in Australia expect that inflation will decline in 2024 to 40 per cent of those globally.
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.