Still wary of the stock markets after the global financial crisis, private investors are parking their funds in banks. But inflation and low interest rates are eroding their savings, warns the Allianz Global Wealth Report…
Even though the stock markets did well towards the end of 2016, private investors are increasingly wary of markets. Instead of investing, they are parking more money than ever in banks accounts – even though interest rates remain low to zero.
According to the latest Allianz Global Wealth Report, stock markets last year fueled asset growth worldwide on the back of year-end rally. Securities, including equities and investment funds, were the best performing of the three asset classes analyzed (the other two are bank deposits and insurance policies and pension funds) with a growth of 8.7 percent in 2016.
Yet, private investors sold more securities than they bought in 2016. Opting for security and liquidity over returns, they sought safe harbors, particularly bank accounts – although there are distinct regional differences.
On average, 1 trillion euros has been deposited into bank accounts every year since the global financial crisis. In 2016, this reached a record of almost 1.4 trillion euros. The combination of inflation and low interest rates means, however, that savers are losing money through this behavior. In 2016 alone, around 300 billion euros was lost. This year, with rising inflation, the figure might be twice as high.
“The saving behavior of private investors is still decidedly risk-averse,” says Allianz Chief Economist Michael Heise. “New money is mostly put into bank accounts, not least in industrialized countries. But here, they not only generate no returns but suffer real losses.”
Before the financial crisis, around 40 percent of new funds went into banks. In the years following, this rose to an average of 50 percent, but last year this number was higher than 60 percent. The savings behavior is more marked in Europe, particularly in Germany, than in the United States.
Americans bought securities worth more than 700 billion euros in the past five years, but Europeans have consistently sold securities, disposing of around 350-billion-euro worth. These differences in savings habits are also reflected in functional drivers of asset growth: In the U.S., three-quarters of asset growth came from changes in the value of their portfolios. In Europe and Japan, faith in bank deposits is high, so only half of growth was due to changes in the value of the portfolio. In Germany - the land of the “savings world champions” - it was a quarter.
“The last few years thus confirm the cliché that Americans are more willing to take risks and to trust the stock market with their money, while Europeans are more anxious and do not trust the markets, or no longer trust them,” says the report.
The Japanese have an even stronger preference for investments that can be liquidated quickly than those in Western Europe. Japanese households continue to hold more than half of their financial assets in the form of savings deposits. It is not surprising that the Japanese are skeptical about investing in the stock market, notes the report. A 100-euro investment in the Nikkei, the benchmark index of the Tokyo Stock Exchange, on December 31, 1999 would have achieved gains of just 0.95 euro by the end of last year, corresponding to a return of 0.06 percent per year.
In contrast to the growing popularity of bank deposits, the importance of insurance policies and pensions has declined, with only around 45 percent of savings on average being invested in this asset class in recent years.
The Allianz Group is one of the world's leading insurers and asset managers with more than 86 million retail and corporate customers. Allianz customers benefit from a broad range of personal and corporate insurance services, ranging from property, life and health insurance to assistance services to credit insurance and global business insurance. Allianz is one of the world’s largest investors, managing over 650 billion euros on behalf of its insurance customers while our asset managers Allianz Global Investors and PIMCO manage an additional 1.3 trillion euros of third-party assets. Thanks to our systematic integration of ecological and social criteria in our business processes and investment decisions, we hold a leading position in the Dow Jones Sustainability Index. In 2016, over 140,000 employees in more than 70 countries achieved total revenue of 122 billion euros and an operating profit of 11 billion euros for the group.
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