Amid rising geopolitical uncertainty, the world's sovereign wealth funds (SWFs) and central banks are favouring the United States and shying away from the United Kindgom, according to a new survey from Atlanta-based Invesco Ltd.
The firm on Monday released the latest survey of investment managers at SWFs and central banks, which control a combined US$12 trillion of assets.
The survey finds that investors are largely standing pat, amid increased uncertainty, and a lack of investment alternatives. These investors are making fewer allocation changes than they have over the past five years, Invesco reports.
Sovereign investors continue to rank the U.S. as the most attractive investment market, as they have for the past three years. Additionally, the U.S. is leading in actual allocations, Invesco reports, with 37% of respondents overweighting new flows to North America in 2016, and 40% planning to overweight the region again in 2017.
Rising interest rates is the primary reason for the U.S. leading the way, followed by expectations that the new U.S. government will be "pro-business" on the corporate tax front.
However, "long-term confidence is still restricted by uncertainty around whether Trump will deliver on policy promises, and positive views on potential infrastructure investments in the U.S. are hampered by concerns about growing protectionism limiting access for foreign sovereigns," Invesco says in a statement.
Conversely, sovereign investors are turning away from the U.K. market amid concerns about the impact of Brexit, which Invesco says, "is seen as a significant negative for U.K. investment".
Sovereign allocations to the U.K. were down in 2016, Invesco says. Allocations to continental Europe also declined, the survey notes. However, within Europe, investors are ranking Germany as one of the world's most attractive investment destinations. "Germany's popularity is attributed to its perceived "safe haven" status and positivity towards Germany has increased based on its economic strength," Invesco says.
The survey is based on interviews with 97 different sovereign investors, including SWFs, central banks, and government pension funds.
"Sovereign investors are a diverse group and challenges affect sovereigns differently according to their liabilities, risk appetite, funding dynamics and other factors. Our study has once again illuminated how these diverse investors are responding to global trends as they become ever more sophisticated, yet limited by both external and internal constraints," says Alex Millar, head of EMEA sovereigns and Middle East and Africa, institutional sales, Invesco, in a statement.
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