Global recession, Brexit and inflation: Asset managers’ biggest concerns

The report, Navigating The Cycles, which surveyed 300 asset managers across Europe, North America and Asia Pacific, found 45% of respondents highlighted inflation as their key concern, while 44% are worried about a fallout from the Brexit negotiations and 37% anticipate a liquidity shock.

Interestingly, Brexit was not only a worry for European asset managers, but was also named as a significant concern by 50% of US-based respondents, indicating nervousness that the negotiations may impact international markets as well as the UK and Europe.

“Looking at the indicators today we can see that they may have good reason to be concerned, from potential inflation shock, to rising political tensions, a shift toward more protectionist trade policies, and the potential fallout from Brexit,” the report said.

Global recession

Asset managers across the globe also fear a global recession, with 88% of respondents predicting this in the next 18 months; some 78% said this was “very likely”, 9% consider it to be “somewhat likely” and 1% believe it to be a certainty.

In the event of a recession, 68% of respondents said they would shift the focus of their investment strategies to default and recovery rates while 65% anticipate looking more closely at emerging markets.

However, Fitch cautioned the strategy of moving into emerging markets was not without risk, as volatility in the region remains high and the asset class faces a number of headwinds.

Many respondents to the survey also share these concerns; some 63% see China tightening controls on capital outflows as the biggest risk to the region, while global trade tensions and rising populism in the eurozone were also named as potential negative influences.

Respondents are also particularly concerned about political risk in Brazil, sovereign risk in Argentina and the recent currency collapse in Turkey as other issues in emerging markets.

“Asset managers will need to think carefully before ramping up investments [in emerging markets],” the report added.

Technological disruption

On a positive note, the research found the majority of respondents believed technological innovation would have a disruptive impact on the industry, with 69% stating it would affect their investment decisions and 66% pointing to the impact it would have on workflow and portfolio management tools.

“The question of innovation is one that sits at the forefront of the minds of investors as they consider the best way to manage both the current and future asset management landscape.”

Asset managers need to be ‘ahead of the curve’ amid transformational digital environment

In particular, in response to the issue of technology helping asset managers through the credit cycle, 34% said it could “offer faster delivery of insight and data”.

“[Technology] can help them to stay ahead of financial market disruption,” the report said. “This may be an individual event, like a political upset, or a macro event, like a large-scale recession.”

According to Fitch, technological innovation can help in a number of ways. 

“The most important of these, according to our research, is in its ability to offer faster delivery of both data and insight,” it said.

“The speed with which investors can act on information is key – those who move fast will be better placed to make gains based on the available information.”

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