EUROPE - Europe remains under-owned by its own citizens, as pension funds in most of Europe steer clear of equities.

While companies are in good shape and global M&A trends are strong, European investor equity exposure remains at all-time lows, according to Allianz Global Investors (AllianzGI).

Speaking at the launch of AllianzGI's first RiskMonitor survey, Elizabeth Corley, chief executive at AllianzGI Europe, said: "We see massive de-risking in portfolios away from equities. Many institutional investors do not own equities.

"The average German pension fund owns less than 5% in equities and perceives even that as a risky position. But equities will hedge a 3-7% inflation risk, which bonds will not do."

The RiskMonitor survey reflects this trend, with only the Nordics and the UK - the regions traditionally associated with being the home of the heaviest equity investors - citing sharp equity market falls, together with interest rates, as the biggest risk over the next 12 months.

Overall, 10.7% of survey participants named equity market falls as their biggest risk, with 54.8% still classing it as a considerable risk.

Sovereign debt risk was ranked the highest in Austria, France and Italy, while interest rates were the biggest concern to German and Swiss investors. Dutch investors viewed market volatility as the biggest risk.

Consequently only 6% of survey respondents named the hedging of equity exposure as a way to deal with their biggest risk. Hedging their fixed income exposure, on the contrary, was more popular, with 23% stating this was their chosen method of dealing with what they perceived to be the biggest risk.

Neil Dwane, CIO for Europe at AllianzGI subsidiary RCM, said: "Even though from a valuation perspective European equities would be an intuitively easy choice, every investor's risk perception, risk tolerance and risk exposure is subject to many different factors and therefore looks unique."

The survey also revealed that environmental, social and governance (ESG) criteria rank low in investors' perception of non-financial risks.

None of the respondents thought it was a huge risk, while a mere 3.4% classed it as a considerable risk - all of them Austrian investors.

Across Europe, a slight majority of respondents, 52.1%, did not view ESG criteria as a risk at all, while 44.5% perceived it as a minor risk.

A total of 156 institutional investors - predominantly pension funds - took part in the survey, which was carried out by IPE between March and April.

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