July 28, 2020 / 11:35 AM / 8 days ago

Sovereign investors see U-shaped recovery, but with slower growth, survey shows

LONDON (Reuters) - More than half of sovereign wealth funds responding to a new survey expect a U-shaped recovery in the global economy from the COVID-19 crisis, with developed markets likely to be best placed to recover.

But while 58.3% of respondents to the poll by International Forum of Sovereign Wealth Funds (IFSWF) and Invesco expected a U-shaped rebound, most appeared to agree there would be a longer period of slower growth ahead, reflecting uncertainties about factors such as fresh waves of infections and government support packages.

A total of 29.2% of respondents said they expected a W-shaped recovery. Only 8.3% foresaw a V-shaped one.

The survey of 24 IFSWF members was completed last month.

More than 60% of those responding believed that developed markets were best positioned to return to pre-COVID trend growth after the pandemic-induced recession. Fewer than half expected emerging markets to recover best.

Still, respondents backed China as the best-placed major economy to recover. That probably reflected an expectation that China was hit by the pandemic first and had generally handled it better, its economy may be more responsive to government stimulus efforts, IFSWF and Invesco said.

About a third of respondents expected the Chinese yuan to raise its share of global official foreign-exchange reserves, as well as its share in trade invoicing.

A total of 86% of those surveyed felt China would continue to open its economy, enabling freer trade and investment opportunities.

But sovereign investors retained their faith in U.S. dollar assets — 71% agreed the dollar would offer the most attractive investment destination for equity and 58% believed dollar-denominated bonds would be the best-performing debt securities.

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