One-third of institutional investors eye higher-risk investments in 2025: survey
The increase in risk appetite comes despite more than half of them citing geopolitical risks as a top threat
MORE institutional investors plan to pursue higher-risk investments in 2025, based on a survey by PGIM, the global asset management business of Prudential Financial.
The 2024 Global Risk Report: Resilient Investing Amid Geopolitical Uncertainty released on Wednesday (Sep 11) found that one-third of institutional investors surveyed plan to adopt an aggressive portfolio strategy – taking on more risk – by end-2025. This was up from a quarter of institutional investors who currently adopt an aggressive risk tolerance, it noted.
The increase in risk appetite comes despite more than half (56 per cent) of these investors citing geopolitical risks as a top investment threat.
Some 59 per cent of investors agreed that such risks have a negative impact on portfolio outcomes.
The report, which surveyed 400 institutional investors across eight countries, aimed to uncover how geopolitical risks are changing the way institutional investors build their portfolios.
Conversely, the report found that investors have become less worried about other risks such as inflation and recession fears.
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“It is the uncertain nature of the current geopolitical environment that makes it such a challenge for investors,” said PGIM.
“When probabilities are less clear, it becomes more difficult to craft the right investment strategy for a resilient portfolio.”
Among key geopolitical risks, tensions in the Taiwan Strait and South China Sea came in top, with 48 per cent of investors identifying this as the conflict most likely to impact global markets in the next two years.
Conflicts in the region could restrict the flow of key technologies, particularly semiconductors, PGIM cautioned.
This was followed by the Middle East conflict, which more than one-quarter of investors viewed as the greatest risk given the potential for its impact to “ripple across global oil markets and the broader economy”, the report stated.
The war in Ukraine ranked third as a risk, with 13 per cent of investors viewing it as a top risk – particularly those in Europe where the conflict’s effects on supply chains and energy are more acute.
Despite heightened sentiments around geopolitical risk, the increased risk appetite of investors signals that they are taking a long-term view and seeing volatility as an opportunity, PGIM noted.
“Reducing risk tends to limit potential reward. As a result, some investors feel the best course of action is to focus on trends that are more predictable or quantifiable – and deal with geopolitical surprises when they transpire,” it added.
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