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Risk Management

Geopolitical events top institutional investors’ concerns — survey

Global institutional investors are growing more concerned about geopolitical events as a risk to portfolio performance in North America, according to the latest Allianz Global Investors annual RiskMonitor survey.

Eighty-eight percent of survey respondents deemed event risk as a threat to performance in 2017 in North America, ranking second overall, compared to 68% of respondents in 2016, when it ranked sixth among threats to performance. Equity-market risk ranked first in both 2017 and 2016 at 93% and 81%, respectively. Ranked third at 86% is interest rate risk, up from 75% in 2016. Both credit risk and foreign-exchange risk were seen as lesser threats in 2017 than the previous year, with 72% and 63% of participants, respectively, deeming them a threat.

Some 76% and 72% of survey respondents called credit risk and FX risk a threat in 2016, respectively.

The greater concern about event risk comes from geopolitical concerns around the world, including ongoing tension in North Korea, said Neil Dwane, global strategist at Allianz Global Investors, in a telephone interview.

He did note, however, that those concerns are not necessarily reflected in the current strong market environment just yet, as event risk is difficult to measure.

"What I would say about the lack of causality in the real world, is of course that maybe nothing has happened yet," Mr. Dwane said. "We haven't had the complete disentegration of the Middle East (and) we haven't had a European-Russian war."

"Maybe these things are so complex that the markets are right to price them when they happen but not effectively price them when they haven't happened," he added.

Globally, 44% of survey respondents said those geopolitical events are at the top of their list of worries in 2017, followed by global economic slowdown at 41%, rise in interest rates at 32%, U.S. politics at 31% and "new asset bubbles" at 24%.

Globally, 45% of survey respondents believe a tail-risk event is likely in 2017, up from 37% in 2016. In North America, 44% of respondents believe a tail-risk event is likely, compared to 41% in 2016.

Allianz Global Investor surveyed 755 institutional investors in April and May, split evenly between investors from Europe, North America and Asia-Pacific.

The report of the survey is available on Allianz Global Investors' website.