Forced sellers cast shadow over equity markets
Economy woes batter stocks"Further falls in the equity weighting cannot be ruled out and the level may move down to as low as 50 percent over the next five years," he said.
Investment consultancy Redington Partners estimates that in aggregate FTSE 100 pension funds have 170-200 billion pounds invested in equities, up to 70 percent of which is in domestic shares, giving an idea of how powerful an influence the funds could be.
"As potential forced sellers are still reasonably comfortable, I'd expect selling only when we go 15-20 percent lower, when the VIX .VIX is 35 or 40 and indexes drop 5-6 percent on a given day," said Philippe Gijsels, strategist at Fortis Bank.
The VIX index of volatility - Wall Street's fear gauge - last traded at 40 in late 2002. It hit 37 in January and is now around 31.
"In the short term pension funds are likely to offer some stability to the market, rather than being the ones who will destabilise it further by rushing out," said Daniel Peters, an investment consultant at pensions advisory firm Aon Consulting.
INSURERS STILL VULNERABLE
Insurers have slashed their exposure to equities since some were forced to the verge of oblivion when the value of their large stock portfolios crumbled back in the early 2000s. But they remain vulnerable to downward lurches in stock markets.
Companies such as Allianz, Munich Re, AXA and Zurich Financial Services have hedged some of their equity exposure, but they may be forced to sell shares if markets fall further.
But regulators are likely to take a more flexible line than they did in the previous crisis, when their solvency rules forced insurers to sell shares at rock-bottom prices, but which only had the effect of destabilising markets further.
ABN's Richards said that the insurance sector was better placed this time round as it had run more conservative asset allocation strategies through the cycle.
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