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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