Virendra Pandit
New Delhi: India, which replaced the United Kingdom as the fifth largest economy this year, emerged as the second most desirable investment market after the USA for sovereign wealth funds and public pensions funds in 2022, a study by asset manager Invesco revealed on Monday.
China, the second-largest global economy, currently ranks sixth in attracting these investors, the media reported.
Sovereign investors, which currently manage nearly USD 33 trillion in assets, have also seen a rapid rise in allocations to private markets, although this development might come down with fixed income back in favor, the Invesco Global Sovereign Asset Management Study said.
“Over the last 10 years sovereign investors have invested with the wind at their backs thanks to the secular bull market that emerged from the global financial crisis,” it said.
Over the past decade, average annual returns for sovereign investors stood at 6.5 percent and, for sovereign wealth funds alone, at 10 percent in 2021. However, 2022 could become a turning point with higher inflation and tighter monetary policy, hitting long-term expected returns.
While the US remained the top investment destination, some sovereign investors tried to rebalance portfolios, fearing they had become too reliant on American markets, which left them vulnerable to the correction in equity markets seen this year.
In 2014, the UK was the most desirable investment destination.
Emerging markets would benefit from this latest shift, the report said.
Among the developing nations, India has overtaken China as the most popular emerging market, climbing to the number two position in 2022 from number 9 in 2014.
“While this is partly because funds with dedicated Asian allocations are trimming their China exposure, investors have commended India’s positive economic reforms and strong demographic profile,” the study found.
The past decade has also seen a steady increase in creating sovereign wealth funds, with a dozen established in Africa, of which 11 have a strategic mandate to develop local economies.