While only a minority of global investors expects interest rates to rise toward their long-term averages before 2015, rate hikes and tail risk are seen as the biggest risk factor affecting investment performance over the next three years, Allianz Global Investors said in its first risk survey yesterday.
The survey questioned nearly 400 senior decisionmakers at institutional investors in 41 countries around the world, with 25 percent of them viewing rising interest rates as a “great” risk and another 31 percent painting this as a “considerable” risk.
Meanwhile, 20 percent of respondents describe tail risk as great and an extra 39 percent view it as considerable, according to the survey.
“While global central banks may keep ultra-low interest rates for some time, investors are braced for a world where interest rates increase from their historic lows,”Allianz Global Taiwan fund manager Mark Fu (傅子平) said.
Low interest rates may help boost GDP growth in the near term, but the easing monetary policy has its downsides, including inflationary pressures and systemic instability, the survey found.
About 53 percent of respondents in the Asia-Pacific region expect inflation to rise and anticipate an increase in systemic risk, the survey said, adding that 42 percent foresee financial markets turning unstable as a result of the loose monetary policy of recent years.
More than two-thirds of investors, 68 percent, believe that the monetary policies of developed nations have increased the risk of abnormal price distortions in the fixed income market, the survey showed.
“In an era of financial repression, the consequences of ultra-loose monetary policy have clearly become a burden for sovereign debt investors and have led to a distortion of global capital flows,” Fu said.
By contrast, investors’ attitudes toward equity risk are benign with 60 percent believing that equity investment is likely to pay off over the next three years, the survey said.
More than 90 percent of institutional players hold the view that global equities will generate positive returns with the average annual return to reach 6 percent, the survey found.
Taiwanese investors shared the need for portfolio adjustment as evidenced by the increase in equity fund sales, which gained 1.4 percent last month to NT$534.34 billion (US$18.05 billion), from one month earlier, Allianz Global Investors data showed.
“Clients are rethinking their asset allocation strategies as they look for more than managing one specific asset class against a benchmark,” Fu said.
Currency fund sales picked up 4.95 percent last month to NT$826.61 billion, raising the cumulative increase to 15.87 percent this year, according to company statistics.