AEW 2020 Global Perspective: five global asset allocation and investment style influences

AEW has identified five overriding global trends which shape asset allocations and investment styles for investment and occupier markets across the U.S., Europe and Asia Pacific. These are:

  1. structural demographic changes;
  2. slowing economic growth;
  3. coordinated central bank policies;
  4. extreme policy uncertainty; and
  5. ESG factors.

Structural demographic changes

After one of the longest recoveries following the global financial crisis (GFC), economic growth is slowing. Australia is the only leading economy with higher growth in the next five years compared to the prior five years, according to data cited by AEW, while the U.S.-China so-called “Phase One” trade deal indicates an improvement in relationships and has already bettered sentiment.

In AEW’s whitepaper, entitled 2020 Global Perspective, joint authors Michael Acton, Glyn Nelson and Hans Vrensen, heads of research for US, Asia Pacific and Europe, respectively, wrote:

“Investors will want to plan for a more subdued growth outlook in many of the advanced economies, despite the 2020 outlook being better than 2019. It is hard to see where the next big push for global growth will come from, especially with many governments’ debt still above pre-G.F.C. levels. This means that despite low interest rates, fiscal stimulus is not widely available to revive growth across most western countries, but we do note a supportive fiscal response in many Asia Pacific countries, which will likely remain as an offset to regional risk associated with COVID-19(Coronavirus). With productivity growth also at historically low levels, contradicting steady advances in innovation, consensus forecasts show slowing GDP growth for the next five years. This means that demand for real estate space is likely to grow more slowly.

Slowing economic growth

In response to the recent economic slowdown and low inflation, central bankers reversed monetary policies in late 2018 and 2019 and delivered an unprecedented level of global monetary policy easing, says AEW. Policy rate cuts and resumed quantitative easing has been resumed in response to a slowdown in economic growth which in turn has triggered government bond yields tightening, as investors seek safe haven investments while secondary market bond supply remains limited bonds

Michael Acton, Glyn Nelson and Hans Vrensen, wrote:

“Given that real estate competes for capital with other assets, low bond yields also lower the hurdle rate most investors require for taking real estate specific risks. This is actually helping our asset class in relative terms. In addition, central banks around the world have introduced stricter reserve requirements for banks and other lenders, which has kept lending to commercial real estate more conservative compared to previous market cycles. This has also meant more risky speculative development activity has not been funded by banks as much as in the past, reducing the risk of oversupply in the occupier markets. This more restricted supply of space offers global real estate investors a more stable, long-term investment environment than before.”

AEW’s top five global influences on asset allocation and investment styles will conclude tomorrow.

james.wallace@realassetmedia.com