Global equity prices outside Europe are approaching true value however fixed income yields, even though rising, might take another three years to reach a normal level, according to Adrian Orr, head of New Zealand’s sovereign wealth fund.
Wealth funds will have to diversify more to reduce risk, and investments in infrastructure are the biggest opportunity in the market, Orr told Reuters.
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Orr added that the recent rise in bond yields was an indication that the global economy has been stabilising thus returning to real growth with low inflation and central banks should consider this as a sign to start removing stimulus measures.
Global sovereign funds hold around US$5 trillion in assets and they have been the most stable investors during the recent economic downturn because their lengthy investment horizon will increase risk tolerance.
Reuters quoted Orr as saying that that wealth funds should diversify with high equity values and normalising bond yields.
"Global equity prices, in the US and around the world outside Europe, are much closer to value now and it’s not obvious you’ll get outsize returns there. In Europe, there’s still a real price/value gap and that’s where the real contrarian investors will be overweight.
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By GlobalData"Fixed income is the real challenge because the price of debt has been artificially pushed down by central banks. I really hope that we’ll continue to see a smooth transition of these debt prices … but (the time) to normal could be three years.
"I think infrastructure investment is a glaring opportunity, with high demand for infrastructure from many countries, including developed countries, like the US.
"But the gap between the supply and demand for capital is big because many governments are just not available or not sophisticated enough to … truly share the risk," Orr added.
New Zealand’s sovereign wealth fund, New Zealand Superannuation Fund, manages assets worth NZ$23 billion (US$19.1 billion).
