Half of Australian institutional investors have identified “geopolitical bad actors” as the biggest economic threat they face in the new year, research from Natixis Investment Managers has revealed.
Natixis IM’s survey of 500 institutional investors also highlighted central bank policy as a major economic threat in 2024. Notably, 50 per cent of Australian respondents expressed concern, surpassing the global average of 42 per cent.
The study further revealed that a decrease in consumer spending (46 per cent) and the impact of China's economy (41 per cent) closely followed as noteworthy concerns.
Moreover, despite a notable increase globally, with 37 per cent of institutional investors anticipating the avoidance of a recession, up from last year's 15 per cent, nearly half of Australian respondents remain skeptical, foreseeing an inevitable recession in 2024.
Conversely, over half (55 per cent) of Australian institutional investors expect inflation to decline in Australia, compared with just 40 per cent globally.
Commenting on the findings, Natixis IM country head for Australia and New Zealand, Louise Watson, said: “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.”
“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,” Ms Watson continued.
Market projections for 2024 further revealed that Australian institutional investors are bullish on just two asset classes - the bond market (69 per cent) and private debt (73 per cent).
According to Natixis, this is in line with global sentiments.
But despite bonds being favoured by Australian investors, the survey revealed that they allocate only 21 per cent of their portfolios to fixed income, notably lower than the 38 per cent observed among their global counterparts.
Meanwhile, almost six in 10 (59 per cent) are projecting higher levels of volatility for equity markets, while 39 per cent see a similar uptick in volatility for bonds, alongside concern that slowing growth coupled with higher rates will lead to an increase in corporate defaults (76 per cent).
Deals are few and far between with private assets
While private assets continue to be a top alternative allocation choice for institutional investors, 59 per cent claimed that the popularity of private assets is making it hard to source deals.
As such, teams are building more safeguards into their strategy and 72 per cent said they have stepped up their due diligence to respond to concerns around deal quality.
Moreover, investors indicated concerns about the over-regulation of private markets, finding them less attractive. However, based on their 2024 plans, it seems this is more about easing future allocations rather than reassessing their existing holdings.
Additionally, institutional allocations to actively managed investments appeared to be locked in for the long term, with two-thirds of institutional assets allocated to active strategies, showing no change from earlier years.
“Looking ahead, there is little variance to the plan as institutions project they will have 66 per cent invested in active over the next three years,” Natixis noted.
This was echoed by almost six in 10 (59 per cent) investors believing that the popularity of passive investments increases systematic risk.