Asian investors ready to move to 'risk-on' mode in anticipation of rate cuts, survey says

For more than a decade, investors across the Asia-Pacific region have allocated close to half of their assets to cash-related products, but the prospect of a global cycle of interest-rate cutting will soon prompt them to turn towards equities, according to a survey.

Investors in six Asia-Pacific markets - Australia, China, Hong Kong, Japan, Taiwan and Singapore - are gearing up to decrease their cash positions and adopt a more "risk-on" position in asset classes such as equities and bonds, according to a survey published on Monday by Fidelity International. Doing so will allow them to tap opportunities stemming from an expected interest-rate cut by the US Federal Reserve.

The survey of more than 6,000 respondents in late May found that 53 per cent of investors plan to increase their allocation to equities, which historically benefit from lower interest rates, while 64 per cent are looking to allocate money to income-producing assets.

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The percentage of investors planning to move to riskier assets was particularly high - around 60 per cent - in Taiwan, Singapore and Australia.

Regardless of their investment objectives or time frame, investors in the region expect an annual return of 8 per cent. Those in Taiwan and Australia are more optimistic, expecting returns of 9.5 per cent and 8.8 per cent, respectively.

"With most investors primarily investing for long-term capital accumulation and expecting an annual rate of return around 8 per cent, looking at options beyond cash is critical," said Terrence Kan, client portfolio strategist at Fidelity.

The Fed decided to maintain interest rates between 5.25 per cent and 5.5 per cent in June, acknowledging weaker inflation readings but saying it needed more data before deciding to adjust rates.

According to a May report from Morgan Stanley, the US central bank is likely to begin lowering interest rates in September. The firm anticipates that a deceleration in inflation during the second half of the year will provide the Fed with enough confidence to proceed with rate cuts.

Fidelity's report shows that while there is a growing appetite among Asia-Pacific investors for risk assets, 40 per cent of investors still plan to increase their cash positions as well, and 24 per cent are looking to add to their term deposits. This is especially true for mainland China and Japan, where people tend to invest more conservatively, while investors in Hong Kong and Singapore usually favour more diversified portfolios with "significant" equity exposure.

"It is encouraging to see that most investors are thinking about the long-term when they invest," Kan said. "Having a longer investment time frame allows investors to look at the bigger picture and not be dismayed by periods of volatility through their investment journey."

Younger investors in particular should actively manage their portfolio and focus on growth assets while time is on their side, he added.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.

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