Over fifty percent of Nordic institutional investors are optimistic about the economy as the region emerges from the pandemic, according to the latest Institutional Investor Compass® Survey from MFS Investment Management.
The survey found that just over a quarter of respondents (27%) are confident about achieving their three-to-five-year goals and the same percentage are confident about meeting their shorter-term objectives post pandemic.
This sentiment reflects the uncertainty shared by the region’s institutional investors. The survey shows that more than 97% agree some industries will not recover, which makes the Nordic view the most pessimistic among the regions surveyed. Seventy percent agree that COVID-19 has also created investment opportunities, but 23% think that markets do not fully reflect the long-term economic impact of the pandemic.
Regarding their top concerns over the next 12 months, 97% of Nordic institutional investors say market asset bubbles are their biggest concern, the highest percentage of any region. Meanwhile, 70% fear a global recession, and 57% say stock market volatility is one of their main concerns.
'While there has been an overall recovery in spending as pent-up demand is unleashed across the Nordic region, the global disruptions across industries, markets and regions stemming from the pandemic have left institutional investors uncertain about the future. This sentiment against a fluctuating inflationary outlook demonstrates that a renewed focus on long-term fundamental investing will be key in addressing uncertainty at both the industry and individual security level post pandemic,' said Per Künow, managing director of Nordic institutional sales at MFS.
'We believe that investment returns in the next decade will be markedly lower than they have been historically. Consequently, skilled active management and the alpha it can provide will play an important role in helping investors achieve the additional returns needed to meet their retirement goals', he added.
While pandemic disruptions have created uncertainty, 90% of institutional investors in the Nordic countries believe their organization coped well with the impact of the pandemic, with 27% believing that their government fared very well in addressing the impact.
Institutional investors across the Nordic regions indicate they are expecting the ongoing disruption of their day-to-day business activities due to the possibility of a prolonged remote-service model. Respondents say they are concerned that some activities will be more difficult if the status quo remains, including engaging with relationship management teams (67%), getting responses to timely enquiries (70%) and conducting due diligence on investment management firms (77%).
Rating the usefulness of pandemic-related support, 97% of respondents said that active managers in the region have done a better job than passive managers (70%) of providing valuable communications and support during the pandemic.
The human impact of the pandemic has not been lost on institutional investors. Fifty-seven percent say they are concerned about the health crisis brought on by the global pandemic. In addition to this, 13% say their staffs' health will be a potential challenge over the next 12 months. This is surpassed by the region's concern about potentially lower returns due to economic headwinds (23%) and geopolitically driven volatility (23%).
'The global pandemic has made institutional investors across the Nordic regions more aware of the vulnerability of people, in particular their own employees. At the same time, there is a growing concern about economic headwinds and rising volatility due to geopolitical events," added Künow.
Sixty-three percent of institutional investors from the Nordics agree that, going forward, sustainability will be more important as a result of the pandemic. In support of this, 43% agree the pandemic will accelerate the adoption of ESG investments or strategies.
'The Nordic countries have been the uncontested leader in sustainable investing, and ESG factors have long been recognized as a key component of the investment process. But the impact of the COVID-19 crisis on the real economy and the financial system has taken things to the next level, and we continue to see Nordic institutions ramping up their engagement with us on sustainability', concluded Künow.
Source: MFS Investment Management