23 October 2016
Many investors believe that volatility in the stock markets is the "new normal". Photo: Bloomberg
Many investors believe that volatility in the stock markets is the "new normal". Photo: Bloomberg

Investors see market correction on horizon, hold on to equities

Most global institutional investors expect to see a stock market correction in the near term, but will continue to invest in equities as they are confident they can withstand a downturn, investment management firm State Street Global Advisors said in its latest investor behavior research.

According to the SSGA survey, 67 percent of the respondents in the Asia-Pacific region believe the developed markets will see a 10-20 percent decline in the near term, compared with 57 percent of the respondents on the global level.

More than half of the global investors also expect a correction in the emerging markets soon, the survey showed.

The respondents cited rising geopolitical risks in all markets and a slowdown in emerging markets.

The survey covered 420 chief executive officers, chief investment officers, portfolio managers and directors in private and public pension funds, endowments, foundations and sovereign wealth funds in America, Europe and Asia Pacific.

“Investors are facing a difficult balancing act. While many are concerned about a potential downturn and would prefer to reduce their equities exposure, they need to hold equities if they’re going to have any chance of meeting their long-term return expectations,” Thomas Poullaouec, SSGA regional head of strategy and research for Asia Pacific, said in the research.

About 96 percent of the Asia-Pacific investors showed a high degree of confidence in their ability to withstand the correction, 7 percentage points higher than those in Europe and the United States.

Some 60-70 percent of the investors in the region said they made no changes to their level of downside protection and generally accepted that stock market volatility was the “new normal”.

They also said hedge fund strategies offer the most effective protection despite their comparatively high cost.

“If investors believe volatility is here to stay, they would be well-advised to address portfolio risk and investigate lower-cost solutions such as investing in low volatility equities, managed volatility indices and objective-based strategies which measure against a desired result rather than a traditional index,” Poullaouec said.

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