After a brilliant stock market year in 2021, inflation, rising interest rates and geopolitical tensions triggered a global bear market in 2022. Pension savers suffered substantial losses on their securities. How should they react to this?
With 2022 already dominated by the bear due to high inflation, soaring interest rates, and the war in Ukraine, the bear is likely to continue to rule for the time being. This is the assumption of investment experts such as Matthias Geissbühler, Chief Investment Officer of Raiffeisen Switzerland. And he explains: "Even though inflation has peaked, we do not expect a rapid decline toward the central bank's target of 2.0%. This means that the monetary policy headwinds will remain in place for the time being."
Stock markets remain under pressure
The significant rise in interest rates and high inflation are leaving their mark: consumer confidence is depressed and corporate investment activity is declining. Leading economic indicators also point to a significant slowdown in growth. Europe is currently likely to be in a technical recession. For Switzerland and the USA, Raiffeisen expects slight growth in the current year. The signs are thus pointing to stagflation.
Pension assets correlate with stock market performance
This development is bad for investors and pension savers. According to the latest social security statistics from the Federal Social Insurance Office (FSIO), the volume of pension assets held by pension funds (2020: CHF 1,064.6 billion), life insurers (CHF 186.2 billion) and the AHV (CHF 47.2 billion) has increased sharply in recent years. The insured persons' pension assets under their own management have also risen sharply since 2000. In 2020, for example, the volume of vested pension assets from pension funds amounted to around CHF 50.7 billion, while that in pillar 3a was as much as CHF 135.2 billion.
Many pension savers stick to their chosen investment strategy
Despite the size of their exposed pension assets, many pension savers reacted calmly to the stock market developments in 2022: They did not change their chosen investment strategy and the equity portion of their pension assets, or did not change them significantly, says Oliver Bienek, CEO of Liberty Pensions. This is perhaps also due to the fact that the majority of clients are invested in a balanced way with an equity share of 40%-50%. According to Bienek, this applies to the securities portfolios for vested benefits and 1e solutions as well as for pillar 3a. In addition, 30% to 40% of customers with vested benefits and 3a funds are invested in account solutions.
Temporary setbacks continue to weigh on stock markets
Raiffeisen expects the stock markets to remain highly volatile. The valuation correction due to the significant rise in interest rates has now largely been completed. However, due to the economic and geopolitical uncertainties and the nevertheless still very optimistic earnings expectations, the investment strategists expect further temporary setbacks on the stock markets in the first half of 2023: "Only when the adjustment processes have taken place should interesting buying opportunities open up for equities.
Opportunities are offered by bonds
Raiffeisen's investment strategists see investment opportunities in bonds due to the rise in interest rates in recent months: "The asset class, which has become increasingly unattractive in recent years due to negative interest rates, now offers respectable returns again. With an end to the cycle of interest rate hikes in sight, the correction in bonds is likely to be largely over. " Especially in the event of a recession, safe government bonds would offer good protection: "The correlation to equities should decrease and thus the diversification properties of bonds come back into focus. " They recommend high-quality government and corporate bonds. They are cautious on high-yield bonds, saying the combination of higher interest rates and weak economic momentum is toxic for highly indebted companies.
Long-term invested pension assets develop favorably
As burdensome as the stock market year 2022 was, the stock market performance was nevertheless favorable when viewed over a longer period of time. The Pictet VBG Index 40, for example, which measures the performance of an asset with 40% equities and 60% bonds, was down around 15% at the end of November 2022. Thanks to the good stock market year of 2021, however, the decline over two years is only around 3%. Since 2005, when the index was launched, it has gained 3.1% in value.
Oliver Bienek recommends investing pension assets with a long-term time horizon and not to be influenced by interim slumps. In particular, market timing and trading should be avoided.