Pension Plans Eye Opportunities in Asian Emerging Markets

With pension plans seeking new growth opportunities amid an inconsistent IPO pipeline and record-high public markets, many are turning their attention to Asian emerging markets.

A report published by CREATE-Research and Amundi found that pension plans see potential for improvements in the Asian emerging market, with 76% of respondents reporting they expect to be invested in region within the next three years.

For now, these plans remain unrealized as 38% of pension plans currently have no exposure to the region, 51% have allocations of up to 10% and only 11% have allocations of more than 10%.

Key reasons cited by respondents behind the underinvestment in Asian emerging market assets include geopolitical issues (68%), rising trade frictions (58%), high market volatility (53%) and opaque governance in the region (51%).

However, this sentiment appears to be shifting, with investors growing optimistic about the market due to Asia’s promising growth outlook and ongoing policy reforms aimed at attracting foreign capital, according to the report.

Monica Defend, head of the Amundi Investment Institute, said: “As the geopolitical rivalry between the US and China intensifies, and two rival trading and currency blocks consolidate, other Asian markets are becoming increasingly attractive for investors."

"Increased intra-regional trade and connectivity have enhanced the regional resilience and we expect to see allocations increase in nearly every asset class.”

Bonds, in particular, are now perceived as a value opportunity within Asian emerging markets, with 48% of pension plans expecting hard currency bonds to become more attractive now that the US has started to lower interest rates.

Meanwhile, 45% favor local currency bonds, supported by strong anti-inflation measures from independent central banks across Asia and healthier public finances in the region.