Cross/Multi asset

Investors continue emerging markets push despite turmoil - Greenwich

Institutional investors in continental Europe are continuing their plans to diversify and invest in emerging markets despite the volatility in global financial markets, according to a survey by Greenwich Associates, a research and consulting firm.

The Greenwich Associates 2008 Continental European Investment Management Report found that institutions made big cutbacks in their allocations to European equities and government bonds in 2007, while shifting assets to emerging markets equities and other stocks. And nearly a third predicted further increases in the next three years.

European institutions cut allocations to European equities to 14.7% of their total assets in 2007 from 15.9% in 2006 and more than 16% in 2005. These reductions were used in part to fund increases in emerging market equities, which increased to 2.3% of assets in 2007 from 1.6% in 2006, Japanese equities, which rose to 2.1% from 1.8% and ‘other’ international equities, which increased to 4.2% from 1.5%.

“Driven by these investments in global stocks, European institutions’ overall equity allocations actually increased from 2006 to 2007, despite the continued retreat from European stocks,” said Rodger Smith, consultant at Greenwich Associates, in a statement.

There was also a dramatic cut in allocations to European government bonds. As recently as 2005, European bonds made up more than 27% of European institutional portfolios and 2006’s allocations topped 26%. In 2007, however, institutions allocated just 21.9% of assets to European government bonds.

The survey results also suggested that European institutions have every intention of continuing their diversification plans through to 2011 and possibly beyond. Nearly a third of institutions said they expected to significantly increase their allocations to emerging markets by 2011, while only 2% predicted significant reductions. Twenty percent said they planned to make substantial increases to their allocations to other international equities, while only 7% said they planned to reduce them.

However, institutions were evenly divided in their intentions for active European equity allocations. Twenty percent predicted significant increases and 18% planned big cutbacks.