Asset managers cautiously optimistic about 2024 market outlook: Survey

SINGAPORE – Fund managers are generally positive about the outlook for Asian economies and financial markets amid signs pointing to stability in global economic growth, falling inflationary pressures, a US economic soft landing and a more positive outlook for China.

An Investment Management Association of Singapore (Imas) survey of 79 asset managers from 68 investment houses found that these professionals were also cheered by slowing inflation and the prospect of at least three rate cuts by the US Federal Reserve.

Mr Thomas Kaegi, chairman of the Imas development committee, said: “A majority of the survey respondents are anticipating growth to be steady this year, with easing worries on inflation compared to last year. Concurrently, respondents expect the Chinese real estate market to stabilise, leading to a positive outlook for Asian financial markets in 2024.”

The respondents, who collectively managed some US$35 trillion (S$46.5 trillion) in funds in 2023, were concerned that prevailing high deposit rates and alternative investments, such as private markets and private equity, posed a challenge to the traditional asset management industry.

They also see potential margin compression if clients continue to seek passive income in money markets.

Skills shortage and talent retention were other challenges cited by the industry.

But looking at financial markets in general, the majority of respondents reckon that Asian equity markets, including Singapore’s Straits Times Index, will end 2024 on higher ground.

Most respondents believe that the JP Morgan Asian Credit Index will end 2024 stronger with a 50 to 100 basis points drop in yield, while the MSC Asian Ex Japan and China Index are expected to rally by 10 per cent to 20 per cent.

Respondents see the US dollar maintaining its current exchange rates in 2024 against the Singapore dollar at 1.37 and against the Chinese yuan at 7.32.

As for China, asset managers are cautiously optimistic about the country’s recovery in 2024.

Most see Asia’s largest economy, and the world’s second-largest, finally getting to grips with the well-publicised troubles in its property sector. The country is seen as potentially posting economic growth of between 4 per cent and 5 per cent in 2024.

Imas chairman Jenny Sofian said the survey, which has been done annually since 2016, acts as a pulse check on the industry amid significant changes.

“This year, we are seeing an increasing demand for innovative products in alternatives and digital assets, overtaking ESG (environment, social and governance) investments for pole position,” she said. “This reflects an important shift in investor mindsets, led by the growth of millennial investors.”

Indeed, ESG featured as a key investment pillar with respondents.

Two-thirds of them list the integration of ESG principles into their existing investment operations as a top priority for 2024, reflecting the demand by institutional investors as well as regulations to adequately consider ESG risks and opportunities in their investment process.

That said, ESG investments dropped slightly in the pecking order of priorities vis-a-vis 2023 as certain types of ESG strategies underperformed. Imas noted that this has dampened the demand for ESG investment products, particularly among retail investors.

Nevertheless, asset managers identified ESG as one of the top three future drivers of investment growth and ways for them to differentiate their business, suggesting confidence that ESG demand will grow in the longer term despite recent setbacks. But they also noted challenges in the ESG arena such as a lack of data standardisation and risks of greenwashing. Changes in the regulatory environment presented some speed bumps as well.

Meanwhile, the rise of innovative products is prompting fund managers to look at expanding their capabilities in advanced analytics, machine learning and artificial intelligence.

In the survey, fund managers said they expect that technology will disrupt fund operations, the research industry and the middle office, which refers to the department that provides risk management services to support the front office in a finance company or investment bank.

Imas said it would continue to further facilitate the digitalisation of the industry by bringing fintechs and asset management firms together.

This includes the launch of a fintech directory to help asset management firms discover tech solutions other industry players are using, as well as the newest innovations among fintech members.