Central banks to accelerate renminbi rise, OMFIF report reveals
The renminbi is poised to become a much more influential part of the global financial system as central banks add Chinese currency to their reserve holdings. Some 30% of central banks plan to increase their renminbi holdings over the next 12-24 months, up from just 10% last year, while 70% will increase their holdings over the longer term.
Central banks in all regions will be net buyers in the medium term, especially in Africa, where nearly half plan to increase their renminbi reserves. Asian assets are more generally in high demand, with 40% of global public investors expecting to increase their exposure to the region. Meanwhile, 18% of central banks plan to reduce their euro holdings over the next 12-24 months, and 20% plan to reduce their dollar holdings over the same period as the low yield environment continues. to weigh.
The results were unveiled at the annual OMFIF conference Global public investors report. OMFIF interviewed more than 100 GPIs – central bank reserve managers, sovereign wealth funds and public pension funds – about their asset allocation strategies, investment approaches and market trends. This is a 30% increase in the number of respondents compared to last year.
The report also showed the dramatic impact of Covid-19 and the prospect of lower rates for longer on a group of investors who have, across the industry, $ 42.7 billion in assets under management. . Trends towards diversification – to increase or maintain returns, or to incorporate a more sustainable investment approach – are accelerating, the survey reveals.
For example, 26% of central banks plan to expand their holdings of corporate bonds and 21% will increase their allocations to equities. In their quest for yield, nearly 30% of total CPIs will reduce their exposure to developed market sovereign bonds, while over 20% plan to buy more emerging market government debt.
GPIs help increase demand for sustainable assets and become more active investors. Some 92% of central banks invest in green bonds and 21% are already investing in sustainable stocks. About 65% of central banks plan to increase their holdings of green bonds (up from 45% last year). One in 10 central banks say sustainability is now their most important institutional priority, although 50% still do not explicitly integrate environmental, social and governance considerations into their portfolios.
A stronger push towards greening and growing GPI assets comes as they reach their peak. At the end of 2020, they stood at $ 42.7 billion among the 850 institutions covered by the report. Central bank reserves have also reached record levels, reaching $ 15.3 billion at the end of 2020, up from $ 14 billion at the end of 2019, despite the pandemic. Public pension fund assets continue to grow, reaching $ 18.1 billion from $ 17.2 billion at the start of 2021, with the majority of assets concentrated in North America ($ 9.1 billion) and in Asia-Pacific ($ 4.8 billion). Part of the reason is the exceptional returns on riskier assets, such as stocks, which have seen a startling post-pandemic resurgence. The same is true for sovereign wealth fund assets, but at a slower pace. Their assets grew just under 4% to $ 9.3 billion from $ 9 billion.
GPIs have revealed growing concerns about the stability of financial markets and the risks of their diversification drive. Just over 40% of public pension funds believe their peers are taking excessive risks. This is in part due to the role of monetary policy: 75% of central banks and over 80% of pension funds believe that monetary policy exerts an excessive influence on financial markets and prices.
About the GPI
Global public investors – central banks, sovereign wealth funds and public pension funds – are increasingly expanding their reach. The policies of 850 institutions with global investable assets of $ 42.7 billion are having a profound effect on global markets. They are of crucial importance for the growth prospects, the investment climate and the capital markets. They will play an important role in the post-pandemic global recovery. The eighth edition of the report examines the performance and practices of IPMs in a wide range of investments as well as their activities in the digital economy and sustainable finance.
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