The changing macro environment created by a post-QE world will create three major trends for sovereign wealth funds in Asia.
That is according to Pascale Blanqué (pictured), chief investment officer with French asset management group Amundi.
Outlining how he expects the market to evolve in the coming year, Blanqué said the move to less accommodative monetary policies will not lead to the stabilisation many investors expect.
‘Normalisation is a false trend. We are seeing a shift from the classic interest rate framework to a larger framework where asset prices will continue to move one way or another,’ he said.
Several trends have arisen as a result of these changes, said Blanqué.
1. Development of Asian inflation-linked bonds
‘Asia faces greater inflationary pressure relative to other parts of the developed world, but lacks inflation-linked bonds. There are few inflation plays in Asia beyond hard assets and commodities,’ Blanqué said.
Inflation-linked bonds with exposure to Asian inflation rates would help manage inflationary pressure in the portfolios of Asian SWFs, added the CIO.
2. Diversifying away from western sovereign bonds
Blanqué said the change in perception of the sanctity of western governments will lead Asian investors look elsewhere.
‘We’ve spent 30 years with a lot of US and European government bonds. But these are no longer risk free assets, and we’ll see diversification away from such bonds,’ said Blanqué.
He believes European equities would be a beneficiary of this trend, while emphasizing Amundi’s house view on Europe as a key favoured market in 2014.
3. Exploring new areas entirely
Finally, as central bank policies begin to grapple with new economic realities, SWFs will be driven into other relatively new assets.
‘Central bank policy is now in uncharted territory, and we face a lack of certainty,’ he said.
‘We’ll see more investors diversify into equities, commodities, currencies, fixed income, and RMB, to decorrelate away from the impact of monetary policy on their balances sheets.’