Growth Markets Asset Allocation Trends: Evolving Landscape | Mercer

Growth Markets Asset Allocation Trends: Evolving Landscape

Growth Markets Asset Allocation Trends: Evolving Landscape

What happens as global economic leadership changes hands from the Western economy to the growth markets — countries in Asia, Latin America, Middle East and Africa? In our very first Growth Markets Asset Allocation Trends: Evolving Landscape, we analyze pension fund asset allocation in these dynamic markets and interpret what the trends mean for asset owners, asset managers and, ultimately, individual investors. 

Consider these numbers:

  • 25 of the top 50 global institutional investors are located in growth markets.[1]
  • Almost 70% of global growth now comes from these economies. [2]
  • In 2018, for the first time, more than 50% of the world’s population — 3.8 billion people — is considered middle class or rich; this segment is expected to grow to 5.3 billion people by 2030.[3]
  • Fifty-four percent of the world’s middle class resides in Asia.[4]

Growth market economies are quickly becoming leaders of global growth. Their share of global equity market capitalization has tripled over the last 15 years to 30%, while their share of global market debt has doubled to around 20%. This trend will only increase as global financial markets catch up with their massive economic growth.

To help investors understand the current state of assets under management in these markets, Mercer conducted its first asset allocation survey in growth markets. Focusing on corporate, government and mandatory pension schemes, we gathered information on nearly US$5[5] trillion in assets under management across Latin America, Africa and Asia; also included is commentary on Middle Eastern investment trends.

Among the key findings:

  • Exposure to equities has been increasing at the expense of fixed income.
  • Market liberalization is enabling more diversified portfolios: foreign assets are rising at the expense of domestic assets. Portfolios retain significant home-country biases, though we expect trends of liberalization to continue.
  • Alternatives gained greater traction in investors’ portfolios, primarily in property, infrastructure and private equity.
“In general, we are seeing trends toward more open markets, which enable investors to better diversify their portfolios across geography, sectors, asset classes and currencies.”  
Fiona Dunsire, Mercer’s Wealth Leader for Growth Markets

While there is great country-by-country variation in broad asset allocation, driven primarily by local regulations, we expect this to change as more countries further open their doors to international investing. Investors across the globe are responding.

Institutional investors and asset managers within growth markets and around the world can benefit from insights into the state of these increasingly important economies. Download the free report to see the complete findings, including region-by-region analysis for Latin America, Asia, the Middle East and Africa.

[1]Investment & Pensions EuropeTop 1000 Global Institutional Investors, 2016
[2]Data from the World Bank.
[3]Kharas H and Hamel K. “A Global Tipping Point: Half the World Is Now Middle Class or Wealthier,” September 27, 2018, available at https://www.brookings.edu/blog/future-development/2018/09/27/a-global-tipping-point-half-the-world-is-now-middle-class-or-wealthier/
[4]Brookings. The Unprecedented Expansion of the Middle Class: An Update, 2017.
[5]Data as of the most recent date available for each country; please consult the full report for details

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