Investment in volatile times

Warsaw, 17 October 2019Olga Tschekassin, Economist, Swiss Re Institute

Happy Birthday!

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20 ¦ 10 ¦ 20BoJ EuroS&P 500 Bull Market

Agenda

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Financial markets outlook

Two claims for the future

Structural changes

Financial markets and the real economy don’t always harmonise

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This macro cycle is different

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Usual recession recovery 2009 recovery

+100% +45%

4x1.7x

Nominal GDP growth

S&P 500

Note: Average nominal GDP recovery since 1950; average market recovery since 1960. Both statistics measure the subsequent 10 years following the trough

-2%pts17trn+70trn

10 Years after the global financial crisis: The world is less resilient

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High debt burden

Negative yielding bonds

Lower economic growth

Sources: IIF, Swiss Re Institute, BoC

7Source: Swiss Re InstituteNote: Aggregate of the 8 leading P&C markets (US, Canada, Germany, France, Italy, Japan, Australia)

The pressure on insurers has increased on both sides

2,8%

4,0%

0,5%

2,7%

Underwriting result Investment yield2004-2007 2015-2018

Financial markets outlook

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9Source: Swiss Re Institute

Slowing macro momentum – not necessarily a bad thing

2019

2020

2.3%

1.6%

1.1%

0.9%

6.2%

6.1%

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The U-turn in monetary policy means that yields will remain lower for longer

Source: Datastream, Swiss Re Institute

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What would be a game changer for financial markets?

Source: Swiss Re Institute

Inflation

Central bank changes

Recession

Politics: bail-out

mechanisms

Inflationary pressures in the euro area vary widely

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Expected inflation 2019

Source: Swiss Re Institute

The global financial system is less resilient than 10 years ago

Disciplined UW is key in a low interest rate environment

Inflation can lead to a paradigm shift

Capital preservation strategy is key in higher volatility environment

Takeaways

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Two claims…

…for the future

Claim 1: Negative yielding sovereign bonds to grow again

Source: Swiss Re Institute, Bloomberg

10.5trn USD 0now before 2008

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Claim 2: Japan is not Europe’s worst case scenario

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Source: Swiss Re Institute, OECD

Productivity is measured as real GDP per hour of labour, index (1980 = 100)

95

115

135

155

175

195

215

235

1980 1985 1990 1995 2000 2005 2010 2015

Productivity growth per capita since 1980

Japan USA G7

Thank you!

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Legal notice

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