Specifically, with respect to geopolitics, 70% believe a growing alliance between Russia, North Korea and Iran may lead to greater global economic instability; while almost two-thirds (64%) think China's geopolitical ambitions will split the global economy into eastern and western spheres.
In addition, almost three-quarter (73%) of respondents expect to see "increasing fragmentation" between the Western powers and the emerging economies of Brazil, Russia, India, China and South Africa.
With respect to China, 40% of institutions surveyed are actively divesting their Chinese holdings, while a great majority believe that China's geopolitical ambitions and regulatory uncertainties have rendered the country an unattractive investment opportunity.
Moreover, 62% think that the emerging markets have been "overly dependent" on China, while 70% believe that "conscious decoupling" from China will present opportunities for new emerging markets to climb the global ladder.
In fact, some 59% predict that India will overcome China as the top investment destination in the emerging markets next year.
Also, more than half (54%) of surveyed institutions predict that the outcome of the 2024 U.S. elections in 2024 — which will likely pit incumbent President Joe Biden against Donald Trump — will be more relevant to global markets than in previous years. About 72% fear that a "messy election campaign" will lead to greater market volatility, and 71% fear that a hardening partisan divide in U.S. politics will negatively impact global markets.
In October, Christopher Ailman, CIO of the $304.9 billion California State Teachers' Retirement System, West Sacramento, told Pensions & Investments that geopolitical risk is "back up at an all-time high and is getting tighter and tenser, not easing."
With respect to other macroeconomic factors, Natixis said a little more than half (51%) think a recession is inevitable, with 74% of this segment expecting a recession to be "painful or very painful."
However, 37% of institutions no longer see a chance of recession anywhere on the horizon — up from 15% a year ago.
Some 60% of institutions believe that higher inflation has become the "new normal," while 61% expect rates to remain higher for longer.
"The markets have demonstrated tremendous resilience in absorbing a sharp rise in rates, inflation, and two wars so far in 2023," said Liana Magner, executive vice president and head of retirement and institutional for Natixis IM in the U.S., in a release issued in conjunction with the survey.
In terms of asset allocations, 56% of institutional investors are actively derisking their portfolios as they head into 2024. More than two-thirds (69%) are bullish on bonds, with 62% expecting longer-duration bonds to outperform short duration.
"While institutional investors anticipate plenty of headwinds in the year ahead, few are lowering their assumed rate of return for 2024, and long-term return expectations remain solidly at 8% on average," Magner added.
A majority of institutional investors remain bullish on private equity (60%) and private debt (64%).
Some 61% expect large-cap stocks will outperform small-caps next year, and 57% think international markets will outperform U.S. equities.
More than one-half (52%) expect the information technology sector will outperform the stock market, as it did in 2023. Some 49% expect the energy sector to outperform, while 48% think likewise for healthcare.
"Macroeconomic and market uncertainty complicate the outlook for 2024, and not knowing what will happen next can contribute to higher levels of market volatility," said Dave Goodsell, head of the Natixis Center for Investor Insights. "The portfolio is where it comes into focus, and most institutional investors tell us have shored up their portfolios for known risks."
The survey encompassed 500 institutional investors who collectively manage $23.2 trillion in assets for public and private pensions, insurers, foundations, endowments and sovereign wealth funds around the world.
Natixis IM had more than $1.1 trillion assets under management as of Sept. 30.
