SINGAPORE - Rising interest rates, asset price volatility spikes, and low yields topped the list of risks that most weighed on the minds of financial advisers around the world, according to a survey by Natixis Investment Managers.
Of the 2,775 advisers polled from 16 countries, 57 per cent cited rising interest rates as their top market risk concern. Asset price volatility garnered mentions by 55 per cent of respondents, while the current low-yield environment was cited by 43 per cent of advisers.
Concerns among Asian advisers were in line. Of the 600 advisers polled in Asia, 59 per cent cited rising interest rates, 57 per cent asset price volatility, and 37 per cent the low-yield environment.
While financial professionals are working to mitigate the effects of rising rates, most are only deploying the single strategy of managing bond durations, the report found. Financial advisers are only about half as likely as institutional investors to increase deployment into alternative investments as a way to address higher interest rates.
Among the 73 per cent of financial professionals globally who recommend alternatives to their clients, the largest percentage recommend real estate, 37 per cent, and infrastructure, 30 per cent.
"Shortening duration is one way of reducing risk in a rising rate environment, but it is not the only option," Natixis said.
The concern about asset price volatility is guided by uncertainty about the impact of the US, European and Japanese central banks coming out of quantitative easing. The US rate hike in March 2018 led to an immediate pullback in US equities, and that, coupled with concerns about growing geopolitical risks, led advisers to highlight price volatility as a key worry, Natixis said.
Six in 10 financial professionals believe that asset bubbles could have a negative impact on investment performance, making it their second ranking concern in 2018. Nonetheless, few predict that these bubbles will affect traditional asset classes - only 37 per cent of respondents foresee a bubble in bonds, while 21 per cent see stocks reaching bubble status this year.
Instead, cryptocurrencies is the asset class finance professionals are the most concerned about. "After a considerable run-up in 2017, three-quarters of those surveyed projected this bubble to burst in 2018," Natixis said.