The following 12 months are unlikely to be easy for Asian asset managers, but a trend towards banks and advisors outsourcing money management bodes well for the sector.

Asia’s asset management industry faces a turbulent year in 2017 as geopolitical concerns remain, particularly around possible rising US protectionism and rate hikes. The sector must battle to retain assets from investors who are traditionally short-termist in thinking, a report says.

The comments come from Cerulli Associates, the Boston-based research firm. Its report on Asia-Pacific examines eight of the Asian markets: China, Hong Kong, India, Indonesia, Korea, Singapore, Taiwan, and Thailand. 

The firm said that markets are increasingly expecting higher interest rates in 2017, led by the US Federal Reserve, and this could see investors heading back into “default positions” of bank deposits, because bond and balanced funds will be seen as safe havens in such a setting.

If there is a shift back to banks, “this would put the asset management industry back to square one in the region, after a lot of effort has been expended in recent years to mobilise people's savings toward riskier financial products”.

The election last November of Donald Trump as US president, bringing with it concerns his policies could hit exporters from Asian countries such as China, forms the backdrop for some of the angst in Asia, the report said. “This issue will be particularly important to Asian countries as many of them count the US as one of their top-five trading partners. If the trade faucet to the US begins to shut, this will inevitably lead to some restructuring as these economies seek and find new exports markets or new export products,” it said. 

“From an asset management perspective, a widespread restructuring will have an impact on asset allocations in Asian markets. However, this will be a long-term process. Any short- to medium-term pain felt by Asian retail and institutional investors in the face of such changes would be the price they have to pay for longer-term gains,” it continued.

“Cerulli has also noticed asset managers' burgeoning interest in targeting institutional assets in the region. Institutional investors are increasingly searching for yield outside their comfort zones, and will typically outsource to asset managers with strategies that they do not have internal capabilities in, including foreign investment and alternative asset investment strategies,” Cerulli said.

The firm expects outsourced assets to increase through to at least 2020, it said, and this will be positive for the asset management sector generally.