Invesco, the investment management company, has detailed the desirability of economies across the world.
According to the latest, tenth-anniversary, edition of the Invesco Global Sovereign Asset Management Study, the UK has fallen from sovereign investors’ favourite market to the fourth favourite.
As of 2014, Invesco ranked the UK as the more desirable destinate for sovereign investors’ capital. According to the latest study, the UK now sits behind the US, India and Germany in the category. The study is based on data collected over the last 10 years, charting sovereigns’ rise to influential public institutions.
The global rise of sovereign investors
Since Invesco’s first study, sovereign investors have become some of the most influential institutional investors in the world. In total, sovereign investors now manage around $33trillion in assets.
Such sovereign investors have evolved into high-profile public institutions. These institutions are expected to be transparent, accountable and to drive positive economic and social change.
The report also outlines how sovereign fund successes have caused a number of countries to create their own. A steady increase in the number of development sovereigns was also noted. These funds are committed to diversifying and developing the local economy. Over the last decade, 12 new sovereign wealth funds have been established in Africa. This shows how markets within the continent are recognising how much the funds can offer for encouraging and progressing long-term development.
As the climate crisis has driven a number of countries towards taking action and introducing more legislation and regulation, sovereigns have taken positions to provide leadership in these areas. Invesco’s report explained that Middle Eastern sovereigns in particular, are taking more active investor roles. These sovereigns have placed a much greater focus on low-carbon solutions than previously.
The global shift in economic attractiveness
In 2014, the top three destinations regarding investments were the UK, Germany and the US respectively. Invesco scored the attractiveness of various economies worldwide over a number of years from one to 10, based on investment data.
The UK, which held the top spot in 2014, originally scored 7.4. The UK economy has seen a significant downfall since, dropping dramatically to 4.2 in 2019 followed by a slight rise to 5.7 in 2022. While the economy appears to have made progress in the past three years, other world regions have seen significant growth.
The US has become the most desirable investment destination thanks to steady economic growth, stable currency and regulatory stability. In 2014, Invesco score the US 6.6 but has risen to 7.9 in 2022. Despite taking and holding the top spot, the report highlights how investment in the region may see a fall. It found that some sovereign investors believed that they had become overly reliant on returns from the US market, leaving them vulnerable to a correction in equity markets.
These concerns may lead to a decrease in sovereign investment as funds look to greater diversify where it obtains their returns.
Notably, India has seen a significant rise in its economic “attractiveness”. Having been placed as the ninth most attractive economy in 2014, it is now placed second on the scale. Overall, India’s economy has seen positive growth, rising from 4.9 to 6.4. While these scores indicate an overall rise, most countries have seen large falls in scores, meaning India has been able to capitalise and overtake such world regions.
Rod Ringrow, head of official institutions at Invesco, explained his views on the stats.
He said: “Demographic patterns have been a key theme in our recent discussions with sovereigns.”
“As very long-term investors, they are generally more comfortable with the political and currency risks often found in countries with rapidly growing populations, which can deter other types of institutional investors. These markets are seen as offering long-term opportunities in real estate and infrastructure in particular.”