Global public pension and sovereign funds view India as the most attractive emerging market, with their outlook towards China being more sanguine, a report said.
About 40% of the funds surveyed in the OMFIF’s Global Public Pensions 2023 report, which draws on surveys of 22 public funds with a combined assets under management of $4.3 trillion, chose India as the top emerging market.
The outlook for China is less optimistic, with none of the surveyed funds positive about its economy or returns on assets, mainly due to regulatory and geopolitical concerns.
These funds, which significantly influence global financial markets, are adapting to an uncertain economic environment and prioritizing sustainability in their portfolios.
The report, which tracks funds including Singapore’s GIC, Canada’s CDPQ, Australia’s Future Fund and India’s National Infrastructure Investment Fund, also analyses the annual reports of the 50 largest public pension funds and 50 biggest sovereign funds that together manage a collective $25.9 trillion.
“Improved coordination among stakeholders and enhanced transparency in project execution may further boost the confidence of global investors in increasing allocations to India,” Saurabh Suneja, director, strategic initiatives and policy advisory, National Investment and Infrastructure Fund, said in the report.
India’s appeal seems linked to its relatively strong growth rates and demographics, and it is starting to become more open to foreign investors, the report said.
India’s economic growth soared past most analysts’ expectations during the September quarter, expanding at 7.6%, fuelled by manufacturing, mining and construction sectors, government data showed on Thursday.
In September, JPMorgan Chase and Co. announced the addition of Indian government bonds to its benchmark emerging-market index in a move that could potentially drive billions of dollars into the country’s debt market.
The bonds will be included in the index next June, with 23 government bonds holding a combined notional value of $330 billion meeting the criteria for inclusion in the index.
Ontario Teachers’ Pension Plan recently opened an office in Mumbai “to unlock the many investment and partnership opportunities in India” with its latest annual report highlighting investments in infrastructure, solar energy and healthcare in the country.
Meanwhile, the funds are shifting focus from solely inflation to navigating a prolonged high interest rate environment. Over 60% now prioritize equilibrium real interest rates in their 5-10 year strategies, a significant increase from last year.
The funds are also adopting a detailed, proactive investment approach, aiming to safeguard their portfolios against inflation and moving away from assets sensitive to interest rates. Around 40% plan to boost infrastructure investments, while a smaller percentage intends to reduce real estate and conventional bond holdings.
Sustainability has also emerged as a key consideration, with most funds incorporating environmental, social, and governance criteria into their investment decisions. There’s a growing trend towards investing in green bonds, green real assets, and renewable energy, recognizing the need for robust measures and engagement with portfolio companies to facilitate the energy transition.
Overall, these funds are preparing for challenging times ahead, acknowledging that the successful investment strategies of the past decade may not be as effective in the coming years.
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