APAC Asset Management 2022 Outlook

Entering 2022, the largest cloud looming over the investment horizon was inflation.

In December, Eurozone inflation hit a record high of 5%, whilst rates in the US reached their highest point in decades. As a result, we expect to see a surge towards inflation-linked products and protective asset classes, such as alternatives and real assets.

The impact of the Omicron covid variant will likely ripple throughout the first half of the year, before the more highly vaccinated countries push for a re-opening of international markets. Clearly, this remains an evolving story, and markets will need to be nimble in the face of further coronavirus mutations and subsequent restrictions.

More positively, we see China's 'Wealth Connect' programme as a potentially game-changing affair, with greater access to Chinese capital markets on the table should the Greater Bay Area trial go well.

Interestingly, a recent report from the World Economic Forum suggests that the trial may eventually lead to significant change within the Chinese asset management market, including a 'catch-up' rollout of environmental, social and governance (ESG) products.

We anticipate the drive towards carbon neutrality to accelerate in the near term as energy transformation continues to take hold. A perfect storm of increased consumer demand, lowering costs of renewable technology and supportive international policy make this, arguably, the greatest investable opportunity in a generation.

Looking more specifically at prime asset classes, we anticipate ESG playing a greater role in private equity (PE), with green issues rising to the top of the corporate agenda. The demand for sustainable and responsible business practices is such that increasing regulation and compliance may force fund managers to adopt ESG more stringently in Asia.

The broader PE market remains competitive, with technology at the forefront. Optimising deal sourcing, reporting, ESG screening and other core functions will separate the pack, with those failing to adapt likely to fall behind.

We expect the key sectors of TMT, logistics and healthcare to remain in vogue, with allocations increasing as the covid situation develops. Similarly, the digital assets space appears ripe for investment as the global economy tilts towards digitisation. PE managers have shown considerable interest in cryptocurrencies and tokens, with considerable flows expected into the space this year. 

Progress is less swift in the real estate asset class.

The slow (but steady) economic rebound, expected to hit 6.5% GDP in 2021 (led by China at 8% GDP and India at 9.5% GDP) sees APAC remain the world's fastest-growing region.

According to the IMF, with the projected growth at 5.7% GDP, interest from domestic and cross border investors is rising. As such, we expect to see growth more akin to pre-pandemic levels throughout 2022.

From a corporate perspective, BEPS and other tax reforms are expected to progress and trigger change at a local level as APAC jurisdictions continue to court foreign investment. 

However, geopolitics and associated sanctions remain potential headwinds to some within the region and will have a prolonged effect on investment and structuring decisions.

Technology silos will continue fragmenting, with seamless reporting the likely differentiator, as investors and regulatory bodies alike have demanded increased transparency. We expect sustainability metrics to be incorporated into future reporting, to a similar level as witnessed in accounting.

SPACs (Special Purpose Acquisition Companies) should be given opportunities within Asian hubs, with the relevant authorities upgrading regulations to protect investors better and promote investment. Like within PE, continued interest in digital assets is expected to drive interest in underlying structures.

We also anticipate large multinationals continuing their march on industry consolidation, further shaping the landscape as witnessed in other pockets of the world.

Within the hedge fund arena, we foresee demand rising in response to the industry's success in navigating volatility and risk during the pandemic.

Digital assets were more commonly accepted among managers last year due to greater regulatory clarity, and we anticipate a significant move towards crypto from the more traditional hedge funds throughout 2022.

As allocations increase, it's fair to expect further scrutiny from the regulator(s). ESG is likely to add a further layer of product complexity, at least in the short to medium term, however, this increased layer of oversight may in turn open the asset class up to more investors.

Overall, a strong run from PE and credit funds throughout 2021 will have generated an appetite for investor portfolio diversification. As such, expect more in the way' hybrid funds', offering exposure to both private credit and venture capital, to enter the market over the next twelve months.

Perhaps more so than ever before, this new year begins with a host of moving parts.

Businesses continue adjusting to the 'new normal', amid an evolving backdrop of government policy, as the news cycle grows ever more deafening.

Having the facility to 'cut out the noise' and make considered decisions is paramount and increasingly hard won.

Our suite of services, including ESG Ratings and Reporting, Corporate Solutions, Global Compliance, and a Digital Banking Platform, may be able to assist in this matter.

For more information about how we may assist your practice, please contact us today.