Institutional investors 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, according to a Fidelity International survey.
The research 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.
The survey also indicated this trend applies to bonds with over half of the institutions in Europe intending to increase their allocation to Asia corporate bonds, while 58 per cent of Asian institutions will increase their allocation to Asia government bonds.
“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,” Fidelity head of institutional business Asia Carlo Venes said.
“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.
However, Venes said 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,” he said.
“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.”
