Sovereign wealth funds are exploring emerging market opportunities amid concerns over the impact of geopolitical tensions, according to the annual Invesco Global Sovereign Asset Management Study.
Overall, 83% of respondents cited geopolitical tension as a major risk to global growth over the next year, up from 72% in 2023.
The study — based on responses from 140 chief investment officers, heads of asset classes and senior portfolio strategists at 83 SWFs and 57 central banks — shows that attention has shifted from inflation, which was highlighted as the main concern among sovereign investors in last year’s report.
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Meanwhile, 67% of sovereign wealth funds (SWF) expect emerging markets to match or beat the performance of developed markets over the next three years, due to opportunities created as economies look to relocate supply chains.
In particular, competition between the US and China was viewed as being likely to create opportunities for EMs to attract investment.
Within emerging markets, Asia (ex-China) is viewed as the most attractive region overall, with SWFs showing a particular interest in India.
Latin America was also highlighted as an area of interest, with Mexico and Brazil being viewed as well placed to benefit from US near-shoring. China remains a large and important market for SWFs, while they navigate regulatory shifts and geopolitical tensions.
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EM debt is also viewed as an attractive asset class, with India flagged as the most popular region. The report found that 88% of respondents said they are interested in increasing their exposure to Indian debt, up from 66% in 2022.
“Cautious optimism about the global economic outlook has been tempered by growing concern over competition between global powers,” said Rod Ringrow, head of official institutions at Invesco.
“The long-standing rivalries between the major powers have escalated, and the picture is complicated further by the sequence of important elections taking place this year, particularly in the US, which could have profound implications for markets.”
By asset class, infrastructure had a net asset allocation intention of 21% over the next 12 months, followed by listed equities (19%) and absolute return funds/hedge funds (12%).
By contrast, SWFs’ sentiment towards cash fell (-11%), while real estate (-6%) and private equity (-3%) also declined.
