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Investors 'remarkably' worried over volatility, regulation – RiskMonitor

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  • Investors 'remarkably' worried over volatility, regulation – RiskMonitor

GLOBAL - European institutional investors continue to voice strong concerns over volatility in financial markets at a time when confidence in the euro wanes.

According to Allianz Global Investors' (AllianzGI) latest RiskMonitor survey, European institutions remain in a "state of high alert" regarding market gyrations.

More than 80% of respondents to its survey saw market volatility as a 'huge' or 'considerable' risk to their 12-month financial targets.

Approximately 70% of institutional investors said falling equity markets were a major risk, while nearly two-thirds of respondents pointed to the indebtedness of the euro-zone. 

"Almost two-thirds view current interest rates as a major risk to their 12-month targets," AllianzGI added. "In terms of the biggest financial risk, falling rates trouble twice as many institutions as falling rates."

The company said that, viewed over 12 months, the state of anxiety among survey respondents was "remarkably high".

The RiskMonitor survey also revealed that, in terms of investment strategy, investors had largely endeavoured to eliminate sovereign risk by means of diversification.

"But respondents are all too aware that, when it comes to political management in a collection of bound but not federated democracies, the problems of the euro-zone are greater than investment strategy alone," AllianzGI added.

One UK investment manager in the survey argued that the real worry stemmed from political action.

"There is a real risk that popular pressure might push some governments into populist policies, which would have a great impact on sovereign debt ratings," he said.

Consequently, confidence in the euro-zone remains slim.

In spite of the fact that European institutional investors' faith in the single currency remains virtually unchanged six months on since the last RiskMonitor survey, fears that the euro will not survive in its current form are growing.

Almost two in every five respondents anticipated some reduction of the number of member states in the single currency.

"The figure is more than half in the UK and has shot up from one in four to almost one in two in the Nordic region," AllianzGI added.

The RiskMonitor also highlights new regulation and governance risk, with nearly 40% of respondents indicating that stricter regulation is their biggest concern for the coming 12 months.

However, Andreas Hilka, head of pensions at AllianzGI, argued that the European Commission and national regulators were evolving "well" from instrument-based risk to "more holistic" models.

Regarding Solvency II, Hilka said risk self-assessment was a "welcome-first", but recognised there was still a lot of calibration to do.

"Large insurers can adapt more easily than probably the bulk of small and medium-sized institutions," he said.

Altogether, the RiskMonitor survey gathered responses from nearly 140 European institutional investors with more than €880m in assets under management.

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