SINGAPORE fund managers do not foresee a robust performance from Asian markets this year, amid an expected increase in geopolitical tensions.
This cautious perspective was highlighted in the Investment Management Association of Singapore (Imas) investment managers’ annual survey, where concerns about a fragmenting global order had risen to the forefront.
This year’s survey garnered 52 responses from C-suite executives across the industry, including some of the world’s largest fund houses collectively managing more than US$35 trillion in assets.
“The world is becoming increasingly fragmented and complex. Over the past year, we have witnessed a series of catalysts as well as black swan events that shaped the global and financial landscape,” said Jenny Sofian, chairman of Imas, during a media roundtable on the survey results on Wednesday (Jan 8).
She highlighted that the global competition between the US and China continues to influence investor sentiment and decision-making, even as geopolitical hot spots, including the Middle East, remain a major concern.
Cautious optimism
The Imas survey revealed that more than half (56 per cent) of respondents expect an increase in geopolitical conflicts, while only 19 per cent foresee a robust performance from Asian markets, and just 4 per cent envision Asian markets to lead globally.
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However, respondents were generally positive on the outlook for Asian markets in the longer term, with expectations that key indices such as MSCI Asia ex-Japan, MSCI China Index and JPMorgan Asia Credit Index will end 2025 broadly unchanged or stronger.
Regarding the Straits Times Index, 43 per cent of respondents anticipate that it will remain largely unchanged, while 40 per cent expect a modest increase of 5 to 10 per cent.
Thomas Kaegi, chairman of the Imas Development Committee, shared with The Business Times that there is a “slight divergence” in members’ expectations for the indices.
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Members do not expect a double-digit return, but for it to be either flat or somewhat up at a single digit, he said.
Dhananjay Phadnis, member of the Imas development committee, noted that the divergence between views on indices and the overall market outlook will become clearer in the coming years. This is because this year’s survey included a new question on fund managers’ expectations for Asian markets in 2025, and Imas does not have historical data for comparison.
“The majority, or 70 per cent, of member firms believe that the outlook is negative,” he said, attributing this sentiment to trade tensions and a weak China.
Nevertheless, there is some optimism about broader economic conditions among survey respondents. Fears of persistent inflation have eased, with 52 per cent of respondents expressing confidence that central banks will successfully engineer a “soft landing”.
Moreover, expectations for the US Federal Reserve are shifting, with 75 per cent of respondents anticipating a rate cut of up to 0.75 percentage point.
However, survey respondents foresee the growth of Singapore’s asset management industry this year to be threatened by accelerated flows to passive solutions, further margin erosion and shifting investor preferences.
Kaegi observed that the trend towards passive investing has been slower in Asia compared with developed markets, where actively managed funds have long been the focus.
“This has been changing over the past years, with the adoption of passively managed solutions picking up,” he added.
Reduced focus on ESG
The Imas survey also revealed a significant decline in the priority of sustainability for firms this year, with its ranking falling six spots compared with last year as a key factor for business differentiation.
Only 17 per cent of respondents anticipate an increase in environmental, social and governance (ESG) investments. This shift indicates that many firms have already established baseline ESG competencies and are now turning their focus to implementing new asset classes in order to further distinguish themselves, stated Imas.
Respondents also identified several hurdles to effective ESG implementation. A majority pointed to the multitude of ESG standards (60 per cent), the lack of data standardisation (56 per cent) and standardised frameworks for different asset classes (50 per cent) as the top challenges.
“You see ESG regulations evolving and tightening in various parts of the markets. In Singapore, we have seen the Monetary Authority of Singapore about to launch the transition planning guidelines,” noted Mervyn Tang, co-chairman of the Imas ESG working group.
Despite such challenges, more than half of respondents (58 per cent) have made ESG integration into existing strategies as the top priority for their ESG strategy this year.
