The day after, by contrast, when the Olympic hangover was turned into horror as terror bombings shocked Londoners, no e-mails arrived speculating on the consequences that this tragic event could have on financial markets.
It’s still early days to evaluate the long-term impact that the London bombings will have on the economy. But it is clear that terror is no longer a risk purely linked to emerging markets and those countries without political stability.
On 7 July, the FTSE 100 fell sharply. But early the morning after, it had bounced back to levels similar to those registered before the attacks, recovering from an almost 200-point fall. Many believe the resilience and ‘business as usual’ attitude of the City means the threat to financial stability that the tragic events could represent is only a temporary one.
The impact that 9/11 had on the economy was huge, not just for the industrial sectors affected by the event but also because it resulted in a ‘war on terror’ period that has yet to end. More than a year after Madrid’s bombings, Spain’s economy continued growing and investors’ appetite for new financial products is on the increase. Consumer confidence and tourism picked up in both New York and Madrid not long after the attacks, and analysts believe the same will happen in London.
What this latest tragedy has shown once more is that the world is a risky place, and so is investment. Sadly, managing the risk of such attacks will be more and more present in the minds of investors when reviewing their investment strategies.
Beating the benchmark
After years of disappointing investment returns investors are reluctant to face any further losses in the value of their portfolios. Further diversification of equity portfolios and a stronger focus on absolute return products have been the solutions taken by many heavily invested in equities. For those with a history of investing large parts of their portfolios in fixed income, such as most Spanish investors, the idea of losses is something they still find it hard to digest.
Beating the benchmark when markets are not performing well is a consolation prize that does not satisfy investors’ need for preserving capital and matching liabilities. According to Luis Peña Kaiser, CEO of Fonditel, the demand for strategies aimed to deliver absolute returns is on the increase. However, he adds, the fear of losing capital is also pushing sales of guaranteed products, something he considers a negative development since many investors do not really understand what they are really buying.
Moving away from what the index dictates a more unconstrained investment strategy can prove to be a good recipe for success. Ayaz Ebrahim, CIO of Asian-Pacific equities at HSBC Investments, believes that throwing away the benchmark and focusing on finding quality companies that can create value for shareholders can present investors with very interesting opportunities in the region
(see The Chief, page 12 and FTM Interview, page 14).
The main attraction
In September, delegates from around the world will arrive in Copenhagen to attend this year’s Sibos conference, staged by the SWIFT electronic messaging service. What was once seen by some as a conference for software developers and systems integrators, has now developed into a huge event attracting key players of the financial services industry.
Delegates to last year’s conference in Atlanta came from all across the industry, although the large majority, around 68 per cent, were representing a commercial bank. Investment banks accounted for 16 per cent of total attendants. Dissapointingly, only 2 per cent were coming from an investment management firm. The primary market focus of delegates was payments, followed by securities, cash management and trade services.
Asset managers must address automation in a time of sleepy markets, which show a lack of any concerted trends. But what the figures show is that the use of technology as a tool for making the industry more efficient and cost-effective is now at the top of the agenda of any financial organisation planning its business future. The move away from manual transactions to automated systems and the need for further integration of different technology platforms, means the issues debated at Sibos will continue attracting more and more interest every year (see our technology special on pp28-43).
Paula Garrido, deputy editor
paula.garrido@FT.com
