By Max Clarke
Political and economic changes in the wake of the downturn are generating a class of risk averse investors who favour holding safe assets to riskier transactions, which paradoxically undermines global economic stability.
This in turn may be removing a set of “deep pocket” investors whose investments had previously helped stabilise financial markets, write S. Erik Oppers et al, writing for the International Monetary Fund report, Long-term Investors and Their Asset Allocation: Where Are They Now.
The sudden investment void in tong-term risks, most damagingly with respect to emerging market bonds, is at present only likely to be filled by soverign wealth funds. This will in turn hasten a global economic shift from the west to an arguably more democratic economic system.
However, the global slicing of central banks’ interest rates has seen long-term institutional investors come to accept lower returns from their investments. With the Bank of England unlikely to raise rates for the next year, and the US Federal Reserve keeping their frozen at a rock-bottom 0.25% for the next 2 years, such investors may be compelled to undertake riskier lending, helping to restore capital flows within the global market.
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