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Emerging markets top sovereign allocations
07 October 2013
Invesco study finds shifting balance of power in asset flows
Rebalancing among global sovereign investors has seen emerging markets such as Africa and China become as important as the US, a study by Invesco has found.
Invesco's Global Sovereign Asset Management Study, which examines the investment preferences of major sovereign investors, including funds, found that while portfolios are most concentrated to North America and Asia Pacific developed markets, emerging markets were growing in popularity. It found that while a third (33%) of all allocations were to the US, increasingly, new allocations were being made to emerging markets, with Africa (33%) and China (30%) the biggest beneficiaries.
Invesco's study of the $6trn global sovereign sector also found that the UK and continental Europe were “net losers” in terms of new global sovereign flow, with new allocations falling by 20% and 25%, although they a strong home bias from domestic investors. Many European pension funds commented that they were concerned by a perceived quality of shareholder protection on different stock markets.
Nick Tolchard, co-chair of Invesco’s global sovereign group & head of Invesco Middle East, said: “The dynamics between local and international investment influences the contestable market for asset managers and this is particularly true in key sovereign investor markets as they look to build in house asset management capability.
“The strong home market bias of some of the Western sovereigns has major implications for the world’s markets and suggests that future changes in shareholder protection regulation could have a significant impact on sovereign investor allocations and, as a result, on global capital flow.”
Invesco found that Middle Eastern investors were evenly split between domestic and foreign allocations at 50% each, while emerging markets had a clear preference to international markets, at 78% of allocations. Invesco found that only just over a fifth (22%) of emerging market investors allocated more to domestic rather than international markets, “indicating that these are the assets predominantly flowing around the globe.”
Invesco also found that the majority (60%) of emerging market assets were invested in the US, largely as a result of its status as the global reserve currency and currency peg.