Almost three-quarters (73 per cent) of global institutional investors expect interest rates to rise in 2022, according to a new outlook survey by Natixis Investment Managers.
Concern about rising interest rates were also reflected in responses to questions about investment decision-making, with 71 per cent of respondents saying they believe the stock market’s current rate of growth is unsustainable.
“While inflation poses a number of long-range economic issues, interest rate policy presents institutional teams with immediate investment challenges,” said Liana Magner, executive vice-president and head of retirement and institutional at Natixis, in a press release. “The upside is an expansion of investment opportunities and emerging growth potential in a market ripe for active management.”
Read: Could a rough road ahead in 2021 help active managers?
About a third (35 per cent) of respondents said they plan to decrease their exposure to U.S. equities during the year by allocating more to emerging markets, European and Asia-Pacific stocks. Some 68 per cent said they’ll look at short-term bonds and exchange-traded funds to counter duration risk in bond portfolios if interest rates rise.
More consensus was found on private equity strategies. Among institutional investors that are already invested in private equity and private debt, a large majority (91 per cent) said they plan to maintain or increase these investments in 2022. Among those already invested in infrastructure, almost all (97 per cent) said they plan to increase allocations to the asset class.
The vast majority (85 per cent) of survey respondents said they anticipate most employers will move forward with hybrid work model plans in 2022. Two-thirds (62 per cent) said they expect big-ticket items to be a significant driver of growth in 2022 as a result of pent-up demand that will be eased by the ending of coronavirus pandemic-related restrictions. Despite this, more than half (59 per cent) said they expect consumer spending won’t increase next year.
The survey also found about half (49 per cent) of respondents believe the heightened level of government spending has increased the overall risk of a future financial crisis, while a similar amount (48 per cent) believe global gross domestic product will return to pre-pandemic levels in 2022.
Read: Institutional investors see vaccinations, stimulus paving way to economic recovery