Geopolitical risk has increased its presence in global financial markets, but Asian insurance companies are taking a balanced approach to the development – making asset allocation strategies with a more regional focus as well as spotting investment opportunities in the midst of disruption.
Cheng Duan Pang,
Between the war in Ukraine and the currently poor relations between China and the US, insurers must relate to geopolitical risk, the audience heard at AsianInvestor’s Insurance Investment Briefing Singapore on March 7.
That, however, is not all bad, according to Cheng Duan Pang, head of asset allocation at Singapore-based Income Insurance.
“With China and US dividing the world into the East and the West, it ironically means the creation of more opportunities because there will be inefficiencies created in different parts of the world.
“While production rises and central banks will hike interest rates even higher, tensions have also created opportunities in areas like water and energy security and related industries,” he said.
Another economic trend discussed was deglobalisation, which could lead some Asia-based institutional investors to keep their capital in Asia.
Pang mentioned that developments with reshoring, nearshoring or friendshoring – a growing trade practice of keeping supply networks in countries regarded as political and economic allies – was to some extent scaling back globalisation, and that that process would likely create investment opportunities as well.
Mufri Dharmawan, an insurance investment director from Indonesia, also noted that current geopolitical tensions have revealed investment opportunities both directly and indirectly.
“Tension creates opportunities, especially last year in Indonesia when we saw the stock market go up, mostly driven by energy stocks and rising exports because other players globally had limitations on exports.
“Another opportunity was sizeable gains from forex in terms of US dollar assets,” Dharmawan said.
He said that Indonesia capital will be looking to allocate more into US dollar-denominated assets. This is due to the anticipation of further disruption in the coming years, leading to the US dollar becoming stronger.
Dharmawan explained that Indonesian insurers could typically allocate up to 20% of their portfolios into US dollar-denominated assets.
Paul Colwell, WTW
In general, geopolitical risk is front and centre for many Asian insurers, according to Paul Colwell, head of portfolio advisory in Asia at WTW, particularly among Greater China investors.
As a result, asset allocation strategies are likely to become more regional or country specific in nature, bucking a 20-year trend in which globalisation and free movement of capital had been a focus.
“If there are, or may occur, restrictions on capital flows and movements, then you may want to be closer to home, in terms of the asset allocation. That might be a trend we may see,” Cowell said.
Cowell also said that any deglobalisation trend could lead to potential opportunities for companies based in Asia to become regional players, champions or innovators.
“As others roll back to North America or Europe there might be lots of changes to the economic structures and capital markets structures ahead. We are likely to see more currency volatility. That links to monetary policies and what we have seen this year,” Cowell said.
AsianInvestor will be hosting its Insurance Investment Briefing in Hong Kong on March 10. To find out more, click here.
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