Growth in appetite for risk slows down
Investor appetite for risk remains high although the growth rate has slowed down, according to a new survey by ING Investment Management (ING IM).
The firm cited factors such as concerns over China, tail risk and, most of all, removal of QE or fiscal shock, which was cited as the main worry.
Some 42% of institutional investors said that their appetite for investment risk had increased over the past six months, but 19% said it had fallen in QI 2014. The corresponding figures for Q4 2013 were 56% and 11%.
More than a quarter (27%) of institutional investors said that they had significant concerns about a hard landing in China compared to 14%in Q4 2013. The corresponding figures for tail risk were 27% and 11%.
“Despite there being some considerable political, social and economic issues facing the world today, investors view many of these as known risks or they don’t perceive them to be systemic,” said Valentijn van Nieuwenhuijzen, head of strategy multi-asset at ING IM.
“Problems in Europe for example remain, but the situation has calmed down in recent months so few now expect the EU to collapse. The potential outcome around the crisis between Russia and the Ukraine is less clear, and this will add to investor nerves and adversely affect their appetite for risk.”
Over the past year 67% of investors said they had put in place measures to control risk including increasing diversification. Some 30% have reduced exposure to risky asset classes, 16% have increased their cash holdings and 15% have increased their exposure to ‘liquid’ assets.
According to ING, investors still have a huge appetite for equities and an increasing one for commodities. The majority (70%) of investors surveyed said that equities, while 17% said commodities, were the most attractive asset to invest in over the next three to six months.
There is also an increasingly positive attitude towards emerging market equities. More than half (51%) of investors believed that the performance of emerging market assets will improve over the next three to six months, against 22% who thought it would fall.
Geographically, 30% of investors said the US offered the best risk/return, followed by 24% that said the UK, 18% said emerging markets and 13% said Europe.
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