Few pension fund investors would deny a shift from globalisation to populism is taking place in the global economy, research has found.
A survey of 161 schemes with €1.71 trillion of assets under management found that just 10% said a shift to populism in the global economy was not likely.
Yet 22% said it was “very likely” and 68% said it was “maybe” likely.
The research was commissioned by Amundi, the asset manager, and concluded that macro-risk – such as populism – will see a resurgence in longer term investing.
Writing in the executive summary, Pascal Blanqué, Amundi’s group chief investment officer, said that long-term investing would likely come back into fashion.
“As ever, in uncertain times, the dominant tendency is go back to basics. As this decade has progressed, long-term investing has been sidelined, as asset prices have increasingly deviated from their 'fair value',” Blanqué wrote.
He added: “However, long-term investing is likely to stage a comeback, as investors transition to a new regime where prices gradually reconnect with their fundamentals as volatility rises.”
The report is called ‘Back to long-term investing in the age of geopolitical risk’.
Professor Amin Rajan, the CEO of Create-Research and author of the report, said: “The rise of populism casts a political shadow over the global economy at a time when central banks are starting to unwind their highly accommodative monetary policies. Their combined effects are likely to cause major shifts in the global economy.”
With the rise of populism, sentiment has shifted, Rajan wrote, and as evidence he said 44% of those surveyed expected the importance of long-term investing to rise (48% expected it to remain ‘unchanged’ and 8% expected it to ‘fall’).
Underpinning these results is the belief that lower portfolio turnover will deliver better results and lower costs, Rajan wrote.
“Long-term investing has come to the fore as political events and their impacts have proved difficult to predict.”
Among other headline findings were that:
- 35% thought a shift from monetary policy to fiscal policy was very likely (51% maybe)
- 23% expect to see a shift from deflation to inflation (56% maybe)
- The majority do not expect over-regulation to be replaced by deregulation (46% said very unlikely and 40% said maybe)
The report also said that global equities, European equities and emerging market equities were likely to be most favoured; the US equities less so, due to their perceived over-valuation.
In alternatives, real estate, alternative credit, infrastructure and private equity are likely to be most favoured, as pension plans are obliged to adopt longer time horizons.
The report can be seen here.
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