Sovereign investors from the Middle East are increasingly moving away from traditional markets like Europe and investing in markets like China, new research has found.
According to a study by investment management firm Invesco, 88% of investors in the region have exposure to China, which has risen considerably in attractiveness over the last two years. The proportion of regional investors having a strong exposure to China was also high compared to their global peers.
This year’s study was conducted face-to-face amongst 139 individual sovereign investors and central bank reserve managers across the globe representing $20.3trillion of assets.
Research has also shown that factors such as the Brexit and other populist movements rocking the European economies are lessening Europe's allure to investors from the Middle East. For 64% of all the sovereigns that were surveyed, Brexit was influencing asset allocations while 46% of the respondents said that they were discouraged by populist movements in Germany and Italy.
The bad news for Europe does not end here. Nearly half of sovereign investors from the Middle East plan on decreasing allocations in 2019, just like how they did in 2018. Only 13% of global sovereigns plan on increasing allocations to Europe this year, compared to a 40% allocation to Asia and 36% to emerging markets, Invesco added.
Meanwhile 75% of regional investors have increased allocations to Asia in 2018, a trend that is set to pick up this year too. This is despite the challenges posed by a trade war between two of the world’s largest economies – the US and China. However, certain investors polled cited lack of transparency in the Chinese economy as a challenge while investment risk was another challenge.
The study also noted a growing affinity of Middle Eastern investors to technology, with 89% of them having a dedicated tech portfolio, compared to 48% globally. The rising investments from the regional investors in tech could be attributed to handsome returns from such deals.
“We are observing an interesting shift in terms of both geographic and sector allocation from the Middle East,” says Josette Rizk, Client Director, Institutional Sales, Invesco Middle East and Africa.
“The need to balance global exposure is leading many of the regional investors to explore opportunities in emerging markets and Asia, especially due to the attractive emerging market fundamentals and valuations. Whilst increasing allocation to China remains on the radar for regional investors, investment risk is seen as the biggest challenge to investing in the country.”