US and Japan lead economic recovery; Europe hampers it


State monetary action in Japan and the US are creating positives tailwinds for insurance investors, but headwinds—particularly in Europe— remain stubbornly persistent, according to ING Investment Management’s latest review of market conditions.

Hans Stoter, chief investment officer at ING Investment Manager said that monetary policy easing in a number of key economies had been “instrumental in inducing an upturn”, but added that political risk and “policy mistakes” continued to endanger an improvement in market conditions. Stoter was however optimistic that “the headwinds of late will ultimately blow over with market anomalies set to find equilibrium over time”.

He said that central banks have moved to reduce downside risk, with the actions of the European, Japanese and US central banks acting as drivers of improving economic growth. Japan’s efforts to overcome deflation and the improving conditions in the US housing and labour market suggest improving investment conditions in those markets.

Europe however, has struggled to dig its way out of recession, with continuing uncertainty a major drag upon recovery. As Stoter outlined, “The contrast between the tailwinds of Japan and the US and headwind coming out of Europe is rather large. The decision of the ECB not to change their policy jogged many investors’ memory of the way Japan used to operate, before the current leadership. At the same time complacency amongst European policy makers reminded investors of the gridlock in the US.”

However, Stoter did say that European headwinds associated with Cyprus and Italy had proved to be more muted than some had expected, thanks largely to the “effectiveness of the liquidity mechanisms in substantially reducing the transmission of political uncertainty towards financial markets.”

ING Investment Management noted that fundamentals were weakening in emerging markets, but that they nevertheless remain competitive. The report said that a continuation of monetary easing would likely result in greater interest in emerging market debt as a means to increase investment yield. 

ING, asset management

Bermuda Re