The re/insurance industry has a growing level of optimism about the potential investment opportunities in the near future even though sizeable returns remain some way off.
This was a finding from the latest industry survey undertaken by Goldman Sachs Asset Management (GSAM) with 29% of respondents believing investment opportunities are improving, up from 9% last year.
Almost a quarter (23%) believe the investment environment will remain the same over the coming year, while 48% feel the situation is getting worse, down from 63% last year.
While almost half of those questioned still believe the situation will get worse before it gets better, it is surprising to see the sizeable increase in the proportion of respondents who feel it will improve.
“The thing that surprised us the most was that there’s a growing amount of optimism,” Michael Siegel (pictured), managing director and global head of GSAM’s insurance asset management business, told Reactions.
“It doesn’t necessarily mean that the markets are going to be strong. Indeed, the report’s title - Optimism Grows as Expectations Decline - shows that people are more optimistic that we’re not going to have a disaster. They just don’t think that returns are going to be strong.”
As Siegel explained, there are various reasons for this cautious optimism; one, the US economy may be slowing down a little but generally it is performing well, and secondly, the issues in Europe such as the Greek financial crisis and the problems experienced by Spain appear to be improving.
Finally, there is a growing belief that while the growth of China’s economy may be slowing, it is not about to crash.
“There’s growing optimism that things will be alright, but on the other hand, with the QE programmes around the world, interest rates continue to decline and there’s a belief we won’t see strong returns,” Siegel explained.
The study found that, at 30%, most respondents felt that an economic slowdown or recession in the US represented the biggest threat to their investment portfolios. Credit and equity market volatility came in at second place while economic slowdown or recession in China was the third most popular of the three.
When it comes to asset classes, 17% of those who took part predicted that private equity will generate the greatest return for them in 2016, followed by government and agency debt on 12% and real estate equity with 10%.
The lowest total returns available will come from emerging market equities, cash and short-term instruments and high yield debt, those questioned predicted.