Investors in Southeast Asia are now re-evaluating their investment strategies in the face of new economic and market realities, characterized by higher inflation and interest rates as well as geopolitical uncertainties, a new report finds.

Nonetheless, the vast majority of investors remain optimistic with 90% of respondents in the region, versus 87% globally, expecting returns to be either identical to or higher than last year, according to Schroders Global Investor Study 2023.

How Singaporean investors think their returns over the next 12 months will compare with the previous 12 months

Source: Schroders Global Investor Study 2023

The study is based on a survey of over 23,000 people who invest from 33 locations globally, including Indonesia, Malaysia, Singapore and Thailand in Southeast Asia (SEA).

About 78% of respondents globally believe that we have entered a new era of policy and market behaviour as a result of higher inflation and interest rates.

This is in stark contrast to last year’s study when 42% of respondents believed the market challenges to be a blip and predicted a quick return to the more benign, low inflation, low rates environment.

As a result, more than half of the investors (59% in SEA and 54% globally) have already adjusted their investment strategies, and a third intend to do so.

The research shows Singapore investors who rated their investment knowledge as “expert” were the quickest to react, with 85% (versus 77% globally and 84% in SEA) having already adapted their strategy, while 41% (versus 39% globally and 55% in SEA) who rated their investment knowledge as “beginner” have yet to do so.

Repricing assets

 It also highlights that 43% of Singapore investors are increasingly seeing government bonds more attractive, followed by cash (42%), digital (35%) and private assets (35%).

Strikingly, the majority of Singapore investors expect annual returns of 9.65%, less than the global average of 11.5%. This is on par with the 9.46% annualized return of the MSCI World Index of global stocks between 1987 and September 2023.

“In an investment landscape being increasingly shaped by the ‘3Ds’ of deglobalization, decarbonization and demographics, investors are still getting used to the fact that higher inflation and higher interest rates are here to stay,” says Johanna Kyrklund, Schroders’ group chief investment officer and co-head of Investment.

“Every asset has had to reprice to compete with a yield on cash in the bank. Valuation matters once again. Compared to the last 15 years, you may now need to be more flexible and active in the way you invest. The results of the study show that some investors are adjusting quicker than others.”

Top five perceived barriers to Singaporeans investing in private assets

Source: Schroders Global Investor Study 2023

In recent years, regulators and asset managers have actively been working on democratizing private assets. However, 62% of investors in SEA and 64% globally still have limited knowledge of the asset class, indicating greater education is required to support the continued growth of these investments.

Furthermore, 62% of investors in Singapore also highlighted that costs and expenses associated with private assets are acting as a barrier to investment.

Still, Singapore investors admitted they would consider allocating 13.5% of their funds into private assets (versus 16.4% globally and 15.7% in SEA). For “expert” investors, this rose to 20.82% (versus 23.1% globally and 21.9% in SEA).

Specifically, 25% of Singapore investors are most attracted to investing in real estate, closely followed by private equity (24%) and infrastructure and renewable energy (22%). Again for “expert” investors, this rose slightly to 30% saying they most want to invest in real estate.

Overall, Singapore respondents view private assets as an important diversification tool (51%) and a way to boost portfolio performance (49%). Interestingly, close to a third (31%) of investors in the city-state are also attracted by the perceived sustainability credentials of private assets.

“A few years ago, a typical private assets investor would have been what asset managers call ‘institutional’. These are big investors like defined benefit pension schemes or large endowment funds. As this year’s [study] shows, the picture is likely to change a lot in the next few years,” says Nils Rode, Schroders Capital’s chief investment officer.

Sustainable investing

Investors are attracted to investing sustainably because of the potential to generate positive environmental impact (55% globally and 53% in SEA) and align investments to their societal principles (42% globally and 51% in SEA).

A key element of sustainable investing is active ownership – engaging with companies directly to improve business outcomes with the ultimate aim of supporting investment returns.

Specifically, the key topics in which investors want to see active engagement are climate (31%), natural capital (23%), and the treatment of workers (20%).

“This year’s results underline the widespread and growing recognition of the importance of active ownership to sustainable investment. Companies across industries face a wide range of challenges and opportunities, and intensifying pressures to adapt and evolve. As active managers with a long-term and fundamental focus, using our voice and influence to encourage companies to build healthier, more sustainable business models has long been important and is becoming more so as those trends intensify,” says Andy Howard, Schroders’ global head of sustainable investment.