Bloomberg News

Asia Institutions to Cut Mature Markets Holdings, Survey Says

October 12, 2011

Oct. 12 (Bloomberg) -- Asian pensions, insurers, central banks and sovereign wealth funds plan to cut their developed market investments in favor of regional and alternative assets in the next year or two to counter market swings and low returns, said a Fidelity Investments survey.

Thirty-nine percent of such investors in Asia outside of Japan expect to increase investments domestically, according to Pyramis Global Advisors LLC, a Smithfield, Rhode Island-based Fidelity unit that manages $176 billion for institutions.

Both those in and outside of Japan plan more allocations to Asian, emerging markets, international and global equities, and fixed income, it said in an e-mailed statement today. Institutions are trying to boost returns as market volatility surged worldwide amid debt crises in the U.S. and Europe, and mixed economic data. U.S. Treasury yields are near1 all-time lows as investors seek refuge in safer assets.

“The financial crisis of 2008 to 2009, and more recently the Eurozone sovereign debt issue, has forced institutional investors to identify better strategies for managing volatility,” Pyramis Chief Investment Officer Young Chin said in the statement. “The low return environment is driving more investors to also look for ways to enhance returns by deploying timelier, more dynamic asset allocation strategies that can exploit market dislocations.”

The Chicago Board Options Exchange Volatility Index, or VIX, jumped to a one-year high of 48 in early August, almost triple the end-2010 level. The index measures the cost of using options as insurance against drops in the Standard & Poor’s 500 Index.

The yield on the benchmark 10-year Treasury sank to 1.6714 percent on Sept. 23, the lowest since at least 1953.

Japan Institutions

Pyramis surveyed 95 institutional investors overseeing $1.1 trillion of assets between them in Japan, South Korea, Taiwan, Hong Kong, Singapore and China.

Unlike their peers elsewhere in Asia, Japanese institutions expect to reduce domestic stock allocations, it said.

The MSCI Asia-Pacific ex-Japan Index fell about 18 percent this year, outpacing the 10 percent decline of the MSCI World Index. Stocks in Hong Kong and China are valued cheaper than U.S. peers after the declines, according to data compiled by Bloomberg.

Alternative Assets

Expansion of investments in frequently traded alternative assets, such as equity long/short and global macro, and in high- yield and emerging markets stocks are the top two changes those institutions are likely to make to boost returns, the survey found.

Sixty-one percent of Asian institutions outside of Japan said they are diversifying into alternative assets and 55 percent will use currency hedging to smooth returns, it said.

Investors are speeding up internal decision making and farming out more assets to outside managers to take advantage of shifting market conditions, the survey said.

About 33 percent of Japanese institutions and 28 percent of those elsewhere in the region plan to make their investments more global 10 years from now, with heavier weightings given to fixed-income and alternative assets, the survey found.

“They’re increasing allocations to strategies such as real estate and private equity with a view to enhancing returns,” Chin said. They’re “balancing those investments, which often require extended time commitments, with more unconstrained strategies like equity long/short and global macro.”

--Editors: Andreea Papuc, Linus Chua

To contact the reporter on this story: Bei Hu in Hong Kong at bhu5@bloomberg.net.

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net


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