Asian investors ready to take risks ahead of rate cuts: survey

For more than a decade, Asia-Pacific investors have allocated nearly half of their assets to cash-linked products, but the prospect of a global rate cut cycle will soon prompt them to turn to equities, a survey has found.

Investors in six Asia-Pacific markets (Australia, China, Hong Kong, Japan, Taiwan and Singapore) are preparing to reduce their cash holdings and take a more “risky” position in asset classes such as stocks and bonds, according to a study released Monday by Fidelity International. This will allow them to seize opportunities arising from an expected interest rate cut by the US Federal Reserve.

The survey of more than 6,000 people conducted in late May found that 53% of investors plan to increase their allocation to stocks, which historically benefit from lower interest rates, while 64% are looking to allocate money to income-generating assets.

The percentage of investors planning to move into riskier assets was particularly high – around 60% – in Taiwan, Singapore and Australia.

Regardless of their investment objectives or time horizon, investors in the region expect an annual return of 8%. Those in Taiwan and Australia are more optimistic, expecting returns of 9.5% and 8.8% respectively.

“Given that most investors are investing primarily for long-term capital accumulation and expect an annual rate of return of around 8%, it is critical to consider alternatives to cash,” said Terrence Kan, client portfolio strategist at Fidelity.

The Fed decided to keep interest rates between 5.25% and 5.5% in June, acknowledging weaker inflation figures but saying it needed more data before deciding to adjust rates.

The U.S. central bank is expected to begin cutting interest rates in September, according to a report from Morgan Stanley released in May. The firm expects that a slowdown in inflation in the second half of the year will give the Fed enough confidence to proceed with rate cuts.

Fidelity’s report shows that while Asia Pacific investors are showing increasing interest in risk assets, 40% still plan to increase their cash holdings and 24% are considering increasing their term deposits. This is particularly true for mainland China and Japan, where investors tend to invest more conservatively, while investors in Hong Kong and Singapore generally favour more diversified portfolios with “significant” exposure to equities.

“It is encouraging to see that most investors are thinking long-term when investing,” Kan said. “Having a longer investment horizon allows investors to see the bigger picture and not be discouraged by periods of volatility along their investment journey.”

Young investors in particular should actively manage their portfolios and focus on growth assets while time is on their side, he added.