GLOBAL - Pension funds and other institutional investors believe Greece and other troubled European countries will be forced to restructure or default on their debt within the next three years, research suggests.
A survey of more than 1000 institutional investors by Barclays Capital found 50% predict a restructure, with a further 24% believing it was a likely "but low probability event".
The survey also found the majority of institutional investors (60%) believed the biggest change in the investment outlook since December had been the political upheaval in the Middle East and North Africa. This contrasts with the 18% of investors who believed inflation and potential policy normalisation in advanced economies were the main market developments since the last quarter. Equity investors viewed an oil price shock as the biggest risk.
When asked about the most underpriced risk in financial markets however, the same investors cited a hard landing in China above developments in MENA. This may be partly explained by the fact that while events in MENA are already covered comprehensively in the press, Chinese developments have not received as much attention, Barclays Capital said. Moreover, despite awareness of downside risks to Chinese growth, China forecasts have not been revised downwards yet.
More than half (58%) believed higher inflation would occur in the US, but felt the Fed would be able to tolerate it, while 22% predicted the Fed would need to begin tightening within the next 12 months. A further 20% felt the US economy was still too weak for inflation to have an impact on the Fed's room for manoeuvre over the next 12 months.
"The survey signals fairly clearly that higher inflation is a concern for investors, but the general view is that any increase will be modest enough to allow the Fed to hold off tightening", the report said.
"Some further tightening of monetary policy is expected, but the general view appears to be that it will not be aggressive enough to disrupt markets significantly. Nearly 80% of respondents think that inflation will not be enough to significantly affect Fed policy (and a similar proportion of rates investors expect no tightening of policy in the US this year). And over 60% think that inflation will not be a big problem.
"This may be the key to investors' continued, albeit more muted, optimism: over 80% of equity investors expect returns in excess of 5% this year. In our view, tightening would be very disruptive only if the Fed is forced to tighten actively (and aggressively) this year."
The Pensions and Lifetime Savings Association (PLSA) has revamped the standards for its Pension Quality Mark (PQM) in a bid to raise the quality of single-employer defined contribution schemes.
People approaching retirement are "systematically misjudging" their longevity and undervaluing annuities, the Institute for Fiscal Studies (IFS) says.
Professional Pensions is holding a breakfast briefing on engaging defined contribution (DC) members on 7 February.
Panellists at a PP webinar discuss October's High Court judgment on GMP equalisation, how schemes have responded, what their strategies should be, and how the industry can approach it.