Investors feel 'market can't be trusted'

Survey1Institutional investors are increasingly worried about low interest rates and feel the market is not behaving in a predictable way, says a survey.

One in three institutional investors said current or falling interest rates will be the biggest single risk to their financial targets in the next 12 months, according to the RiskMonitor survey by Allianz Global Investors.

A quarter say the topic that kept them awake at night was financial repression, a term that describes methods governments use to channel funds to themselves, such as keeping interest rates artificially low.

“Many investors feel that the market can no longer be trusted,” says James Dilworth, chief executive of Allianz Global Investors Europe. “One of the reasons behind this lack of confidence is that the market’s ups and downs have not been driven by normal supply and demand dynamics, but by what policymakers do or are believed to do next.”

The most popular alternative to sovereign bonds was corporate debt, favoured by two-thirds of respondents. Emerging market debt and real estate were the next most popular.

Three-fifths of respondents said they planned to increase their exposure to Asia but some were worried about difficulties in gathering information and weaknesses in transparency.

“It is becoming clearer that Western economies are prepared to inflate their way out of debt thus trying to avoid any systemic shock,” adds Dilworth. “But the sovereign debt crisis is far from being over.”

Other commentators say the weakness of the sovereign bond market is due to the lagging global economy.

“Yields are low because the environment is weak and because of the unconventional steps taken by policy makers to combat this weakness,” says Chris Iggo, chief investment officer, fixed income for Axa Investment Managers. “We can all agree that they should be higher and will be higher in time, but if they remain low it is likely to be because of the ongoing weakness of the economy.”

©2012 funds europe