“The Investor Who Cried Risk” could be the title of today’s investor sentiment.
A new report from Allianz Global Investors examines investor attitudes toward risk and identifies investor’s current sensitivity to risk as “investor hypochondria.”
While retail investors suffering from investor hypochondria (or risk anxiety) may become immobile or inert because the fear of loss becomes so overwhelming that people freeze and do nothing, institutional investors tend to foresee an even broader array of threats and potential tail-risk events than the average person because of their greater levels of investment knowledge.
“Memories of the financial crisis may be fading but the long-term scars remain — this is reflected by institutional investor heightened sensitivity to a variety of potential looming risks on the horizon,” according to AllianzGI’s third annual Global RiskMonitor survey.
The survey states that “institutional investors see risks on the horizon regardless of the direction they face.”
AllianzGI also used the survey — which is based on interviews with 735 institutional investors across North America, Europe and Asia-Pacific during the first quarter of 2015 — to find out what are perceived threats to portfolios.
Equity market risk stands out as the greatest perceived threat globally by institutional investors, with 80% of respondents globally identifying it as a threat. Additionally, 76% of institutional investors deem interest rate risk the most significant threat to their portfolios over the next 12 months.
According to the findings of AllianzGI’s third annual Global RiskMonitor survey, other perceived threats to portfolios over the next year include foreign exchange (FX) risk (68%), credit risk (67%), commodity risk (64%), counterparty risk (61%), liquidity risk (60%), inflation risk (53%) and event risk (53%).
“[E]ven the lesser perceived threats are still deemed a threat by more than half of investors globally,” the report states. “More than half claim inflation risk and event risk are a threat.”
What’s also interesting is how institutional investors in different regions have varying perceptions as to the threats they face.
According to the report, those in the Americas are less concerned about inflation risk, foreign exchange risk and credit risk than their counterparts in Asia-Pacific and Europe and the Middle East. For investors in Asia, liquidity risk is perceived as a much bigger threat compared to institutional investors elsewhere.