Institutional investors in the Asia-Pacific region aren't trimming their sails yet to catch the tailwind global equity markets have enjoyed since Donald J. Trump's victory in the U.S. presidential vote.
In the year leading up to the Nov. 8 presidential election, rising U.S. equity valuations and unattractive valuations in fixed-income markets had Asia-Pacific clients of Boston-based investment consultant Cambridge Associates LLC boosting their cash allocations, and that caution has persisted, said Alvin Tay, managing director of Singapore-based Cambridge Associates Asia Pte. Ltd.
Still, the opportunity costs of taking risk off the table have risen since Mr. Trump's victory, with global markets seemingly anticipating a pickup in growth resulting from the president-elect's promises to kick fiscal policy into high gear and slash regulations.
The U.S. Dow Jones industrial average was up 8.15% as of Dec. 9 since the election at a record high of 19,756.85 and some of that index's Asia-Pacific counterparts have done as well or better. Japan's TOPIX index of stocks listed on the first section of the Tokyo Stock Exchange closed Dec. 9 at 1,525.36, up 17% over the past month, while Australia's ASX index ended up 7.8% at 5,560.60.
Bond prices, meanwhile, have fallen as yields rise to reflect more bullish global growth expectations. Since the election, the Barclays Global Aggregate bond index has lost roughly 1.7%.
“In today's climate” — with considerable uncertainty about what recent political events will mean for capital markets — “we're not seeing people rush to put money (parked in cash) back into equity markets or fixed-income markets,” said Mr. Tay. If anything, the trend toward greater diversification away from long-only stocks and bonds is continuing, he said.
After seven years of rallies for global stocks and bonds, big institutional investors are taking stock of their portfolio management approaches and opting to become more defensive, agreed Peter Ryan-Kane, Hong Kong-based head of portfolio advisory for the Asia-Pacific region with Willis Towers Watson PLC's investment consulting business.
The short-term bounce global equity markets have experienced in the weeks following the election is unlikely to derail that trend, he said. Based on its view of the balance of risks facing investors now, Willis Towers Watson is calling on clients to reposition their fixed-income exposures by moving out of global bonds in favor of a mix of Asian bonds and cash, said Mr. Ryan-Kane.