Most bond investors believe the global economy is improving, and are not overly concerned about rising interest rates, according to a recent study by Atlanta-based investment management firm Invesco Ltd (Invesco).
Some 58% of investors surveyed for the Invesco Global Fixed Income Study 2018 agreed that the global economic outlook is strengthening, and 66% envisage central banks shifting to quantitative tightening over the next three years after years of easing. At the same time, 58% say they are not concerned by rising inflation.
The study, released January 29, is based on responses from 79 institutional fixed income investors – including 21 from Asia Pacific – with total assets under management (AUM) globally of US$4.4 trillion as at June 30, 2017. The Asia Pacific investors had total AUM of more than $1.2 trillion.
According to Nick Tolchard, head of Europe, Middle East and Africa for Invesco Fixed Income, the majority view is that the global economy has entered a “new normalisation”, featuring modestly improved economic growth and continued low yields, along with low inflation and ongoing central bank intervention.
"Most investors feel that central banks are right to raise rates and reduce balance sheets, and only 17% see rising rates as a policy mistake," Mr. Tolchard says in the report.
Meanwhile, Terry Pan, chief executive officer Greater China, Southeast Asia and Korea at Invesco, says fixed income investments are “increasingly critical” to Asia Pacific portfolios.
Some 43% of Asia Pacific respondents raised their allocations to core fixed income over the past three years, compared with 38% who cut back.
The share of investors who boosted allocations to alternative credits such as infrastructure and real estate debt was 52% versus only 10% who reduced their exposure.
According to Mr. Pan, the study shows that investors in Asia Pacific "tend to allocate to solutions that can either hedge interest rate risk or deliver superior capital appreciation and yield".
“Recent years have also seen growing interest from investors in alternative credit such as bank loans and emerging market bonds, and we expect this asset class will continue to be popular among Asia Pacific investors for the near future,” he says.