Volatility is the 'new normal'
Funds management firms in the Asia Pacific region are taking less preventive action to deal with a possible market downturn and are seeing volatility as the 'new normal' according to State Street Global Advisors (SSGA).
Research conducted by SSGA found that despite the possibility of a contraction institutional investors in the Asia-Pacific region have not moved to protect portfolios against capital losses with 68 per cent making no change to their level of downside protection.
SSGA said these investors considered "volatility to be the 'new normal'" with this view at odds with institutional investors in Europe and the US where only 29 per cent and 39 per cent of investors (respectively) believed volatility to be the standard going forward.
The research was conducted for SSGA by Longitude Research in January among 420 chief executive officers, chief investment officers, portfolio managers and directors at private and public pension funds, endowments, foundations and sovereign wealth funds in America, Europe and Asia Pacific.
The research found that while 67 per cent of institutional investors in the Asia-Pacific region were convinced of an imminent contraction in equity markets investors were buoyed by high levels of confidence in the ability of their portfolios to handle a correction.
The research stated that "strong market performance in recent years is likely to have contributed to this confidence. As many stock markets reach pre-crisis heights, investors may believe that short, sharp shocks are just a blip in a sustained bull run".
SSGA also stated this overconfidence could dissuade investors from exploring downside protection options and expose them to a prolonged bear market and of those that have stopped using protection strategies 57 per cent stated it was because the trade-off between cost and gain was not favourable.
AUTHOR
Jason Spits
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