A quartet of large institutional investors at a Milken Institute conference in Singapore on Friday agreed that Asia is likely facing a prolonged period of low growth, even as most expressed confidence they would be able to find enough opportunities to garner decent investment returns.
Of the four, Hiromichi Mizuno, executive managing director and chief investment officer of Japan's ¥129.7 trillion ($1.25 trillion) Government Pension Investment Fund, Tokyo, admitted to being the most pessimistic due to the prospect of a prolonged slowdown by China's economy.
The fact that “we don't know what's coming” for an economy that's as big as Japan, the U.K., Germany and Italy combined is “enough reason to be cautious,” Mr. Mizuno said.
The rest of the panel remained far more ready to accentuate the positive.
“I'm a little bit more optimistic” that the new model of domestic-led growth China is pursuing to replace an exhausted export-led model will set the stage for continued growth in the region, said Jeffrey Jaensubhakij, deputy group CIO and president, public markets, for $300 billion Singapore sovereign wealth fund GIC.
Mr. Jaensubhakij asked if China and other Asian economies can pivot to that model and show that businesses focused on meeting domestic demand can grow, which would attract capital to fund them. There are good reasons to think they can, he said.
The outlook requires institutional investors as well to become “a bit more sophisticated” than when simple assumptions on continued economic growth could drive most investment decisions, said Raphael Arndt, chief investment officer of Australia's A$122.8 billion ($92.9 billion) Future Fund, Melbourne.
The region is facing a prolonged period of low growth, but factors such as the continued growth of Asia's middle class, increasing education and population growth should ensure there will be interesting opportunities relative to the rest of the world, Mr. Arndt said.
The region's demographics, urbanization and emerging middle class, with rising disposal incomes — all structural trends in Asia that will persist regardless of the twists and turns of stock and bond markets — “give me enormous hope,” agreed Mark Tucker, Hong Kong-based group CEO and president, AIA Group.
But to pursue the opportunities emerging now, in areas such as health care, early-stage technology or meeting the needs of aging populations, “investors have to figure out how we can reposition our portfolios to take advantage … and not be so beholden to this idea of economic growth,” Mr. Tucker said.
“For us, we've reduced our broad risk in the portfolio to things like equity beta or bonds … built up cash for optionality” and refocused the fund's private portfolio on growth opportunities, including in China, while adding hedge fund strategies that rely on skill rather than market direction for returns, Mr. Arndt said.