Investment consultant Aon PLC recently told corporate pension clients in Germany to avoid making investments in U.S., assets, as policy uncertainties have caused significant market volatility this year.
In a German-language blog post dated May 20, Aon detailed the risks that volatility could have on Germany’s occupational pension schemes—defined benefit and defined contribution retirement plans that are provided by an employer.
“In this environment of uncertainty, it is not advisable to make new investments in U.S. assets,” Aon advised, as translated. “However, one should also not hastily liquidate existing investments in U.S. assets, but instead carefully rebalance.”
The consultant added that investors are likely to sell U.S. assets like Treasury bonds, which in turn could drive up interest rates and increase the risk premium for the U.S. as a debtor, which Aon evaluated as currently comparable to the level of Italy and Greece.
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Aon also warned of a devaluation of the U.S. dollar, adding that uncertainty could continue to drive up inflation.
“Raw material shortages and supply chain disruptions amid geopolitical tensions could further drive-up inflation and thus interest rates,” the Aon post stated.
Aon warned that continued volatility could result in capital flows to “safe havens” such as Europe, Japan, Canada and Australia.
The post also stated that currency risks against the dollar should be hedged, and investors should buy opportunistically if interest rates rise.
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Tags: Aon, Germany, investing, market volatility, Pensions, Volatility
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