Investors name debt, volatility and politicians among biggest risks to goals

Sovereign debt risk and volatility have topped the list of risks investors are worrying about, but the danger of political meddling making investment goals unachievable is also an important concern, according to Allianz Global Investors’ Autumn RiskMonitor survey.

Other metrics that have risen in perceived riskiness since AGI’s last survey in Spring include current interest rates, liquidity and counterparty creditworthiness.

In each case, three times the proportion as back in Spring cited these as a risk to investments now.

Elizabeth Corley (pictured), CEO of Allianz Global Investors Europe, said: “We must now all admit that 2008-09 was not all of the Great Financial Crisis, but merely its opening act.”

The survey, published today, found 89% of 140 respondents, responsible for €909bn assets, cited the volatility as a ‘considerable’ or ‘huge’ risk to meeting their investment goals. This was above an already-high 72% recorded in Spring.

They do not view fixed income as a safe harbour from this, either – and little wonder, because since AGI’s last poll in Spring the spread of Greek 10-year debt over Germany’s doubled to 2200bps, the US lost its AAA rating, and various eurozone members were also cut.

Some 79% of investors told AGI sovereign debt risk over the next 12 months was a considerable or huge risk to achieving their goals.

The French, whose own sovereign rating is at risk, are most nervous (64% say sovereign debt is a ‘huge’ risk) followed by Italians, on 57.1%. Debt is even seen as a ‘huge’ risk by Germans (43%), whose rating seems secure despite a partially unsuccessful Bund sale last week.

Authorities from Washington to Frankfurt have tried to calm debt fears by pumping about $4trn into the financial system since 2008, and seem willing to provide more.

But the proportion of investors still fearing a climate of ‘limited liquidity’ will hit their investment goals doubled from Spring to Autumn, to 44%.

AGI’s report noted: “This marks a profound point about the state of anxiety on financial markets today.

“The sums of money committed by G10 government agencies in three years more than double the entire universe of AllianzGI RiskMonitor survey participants’ savings accrued over many decades, but still the extraordinary waves of purchases begun from Washington, Frankfurt, Bern and London have not brought – or ‘bought’ – lasting confidence.”

A CIO of a Dutch pension said: “We have enough liquidity, but others in the financial system have not nearly enough and that poses a huge risk also for our pension fund.”

As happened back in 2008, fears have also arisen over the creditworthiness of fellow market participants – but this time investment banks and corporations are joined by sovereigns on the list.

AGI’s report noted: “The second half of the hurricane is about credit. The prime suspects are neither individuals addicted to their credit cards, sub-prime mortgage packages shipped across the Atlantic nor leveraged business; but the world’s biggest issuers of debt, central governments themselves.”

Creditworthiness of counterparties is seen as a ‘huge’ or ‘considerable’ risk by 56% of respondents – compared to 30% in Spring.

Not surprisingly, politicians are not widely viewed as a solution to the prevailing problems.

Some 75% of Dutch respondents said over half their investment risk was now determined by politicians and policymakers. Two thirds of Italians agreed, as did 56% of Germans and 36% of the French polled. Nordic (33%) and British (15%) were less willing to attribute large risk to political/policy decisions.

Wolfgang Mader, head of asset allocation strategies at AGI subsidiary risklab, said: “If you think about the rescue packages put together in the bond markets, government influence is becoming more and more important in current conditions.”

Despite the apparent worries about politicians’ attempts to rescue the situation, 80% of respondents believe the euro will survive, and the proportion foreseeing a concrete split in the bloc has fallen from about one third in Spring to less than 20% now.

About one-fifth of investors envisage eurobonds being issued, while 42% expect strengthened stability mechanisms.

A large proportion of respondents (40%) said they tackled the current environment by diversification, about as many as the combined mentions of the three next most popular methods – dynamic asset allocation (12.3%), duration management (14.5%) and risk monitoring (15.2%).

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