Institutional investors plan to reduce equity exposure by 37% in 2019: BlackRock poll

BlackRock’s institutional investors plan to reduce their exposure to stocks by 37 percent in 2019. This is as per an annual survey of 230 of its largest institutional clients representing over $7 trillion in assets over a four-week period in November and early December 2018.

Since its investors currently own $3.4 trillion in stocks (including ETFs), we could be staring at a mammoth $1.2 trillion (Rs 85.05 lakh crore at Rs 70.875/$) fleeing global stock markets over the next 12 months. This could trigger a domino effect with other institutional investors fleeing stocks, resulting in a freefall in markets.

Also, disconcerting is that this shift is accelerating: 35 percent clients planned reductions in 2018 and 29 percent in 2017.

Investors polled said they are most likely to add to private equity, fixed income and property. “In continuation of a multi-year structural trend of reallocating risk in search of uncorrelated returns, illiquid alternatives are set to see further inflows, with 54 percent intending to increase exposure to real assets, 47 percent to private equity, and 40 percent to real estate,” BlackRock said in a statement.

The US global investment management firm said institutional investors are looking to mitigate risks by increasing allocations to private markets amid rising concerns about a downturn in the economic cycle. “As the economic cycle turns, we believe that private markets can help clients navigate this more challenging environment,” Edwin Conway, Global Head of BlackRock’s Institutional Client Business, said.

Fixed income sees higher acceptance, cash continues to rein supremeFixed income found favour with institutional investors with 38 percent favouring the same, up from 29 percent last year. Within this space, global respondents plan to shift to private credit (56 percent), short duration (30 percent), securitised assets (27 percent) and emerging markets (29 percent).

The survey did throw an interesting angle. Around 33 percent of institutions polled want to maintain or even increase their cash levels in 2019, especially in the Asia Pacific region, to protect their portfolios.