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In a recent article for Mallowstreet, SECOR’s Investment Strategist, Devan Nathwani, provides his insight on how the current market environment could impact underfunded pension schemes.
Market volatility has increased recently. Devan Nathwani, investment strategist at Secor, says the conflict in Ukraine is one reason, and will impact underfunded schemes that hold more equity risk in their portfolio most.
“Ukraine is one reason. The other is concern is around inflation [and] whether central banks will have to take aggressive action on rates,” said Nathwani, as higher interest rates would make equities less attractive. “The market is pricing that in,” he added, saying this was the main driver behind falling equity markets.
While the situation in Ukraine is still highly uncertain, he highlighted that Russia and Ukraine are not a very large part of the global economy. “We are not expecting a big earnings shock to equities,” he said, but investor reactions suggest that they are repricing the equity risk premium – the additional return required for holding equity risk.
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