Global investors look through election uncertainties to double down on global equities and private equity
Malcolm Melville
David Rees
Johanna Kyrklund
Although the market response has so far been relatively muted, a rise in the oil price could impact inflation and lead to higher interest rates.
• Malcolm Melville, Fund Manager, Energy at Schroders
• David Rees, Senior Emerging Markets Economist at Schroders
Global investors are looking through the short-term noise created by this year’s election cycle to harness the major trends of deglobalisation, disruption and decarbonisation by increasing their exposure to global equities and private equity, according to this year’s flagship Schroders Global Investor Insights Survey.
The landmark survey – which encompasses almost 3,000 investors and some $74.5 trillion in assets across the full spectrum of institutions[2] – instead found that the impact of central bank policy (70%), high interest rates (68%) and a potential economic downturn (62%) usurped any concerns about this year’s election cycle.
Specifically, in terms of national policymaking, investors said global alliances on politics and trade (44%), as well as high levels of government borrowing (35%), would most likely impact their investment positioning.
Do you believe that the elections taking place globally this year will impact your investment risk appetite/positioning?
Johanna Kyrklund, Chief Investment Officer, Schroders, said:
“As an active manager, it is vital to remain focused on investment fundamentals and not the newspaper headlines. Economic activity broadly remains positive and inflation has been moving in the right direction with major central banks now cutting rates. Lower interest rates are supportive of equity values.
“The most important election is still ahead of us with Americans heading to the polls next month. However, it is crucial to remember that politics tends to play out in months and years, rather than days and this is what we have remained focused on; keeping it simple.
“The results of this survey also clearly show the tension facing central banks and policy makers as almost as many respondents are as concerned about inflation risk as they are about high interest rates. Furthermore, high public debt loads are a key concern in many major economies. Although private sector balance sheets have generally come out of the Covid era in good shape, public balance sheets remain precarious. A key risk to be cognisant of is whether growing debt piles may eventually significantly destabilise bond markets.”
Indeed, the study found that macroeconomic risks, such as higher than expected inflation or a slowdown in growth (62%), central bank policies (60%) and political risks (57%) were the biggest threats to fixed income investing.
On the other hand, more than half (51%) of investors are expecting to increase their allocations to global equities over the coming two years. Interestingly, almost half of all investors (44%) were looking to increase their allocations to active equities (44%) and demand for thematic equities (39%) was also high. Some 30% of institutional investors and gatekeepers said they are looking to increase their exposure to the energy transition as an investment theme.
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