Real assets – Feature
The influence of central banks is growing. Once known for being the lender of last re- sort, over the past 12 years national banks in the US and Europe have also become some- thing of an investor of last resort. In a bid to get their economies moving again in the aftermath of the credit crunch, central banks announced multi-billion-dollar bond buying programmes. Now that the pandem- ic has seen market volatility and economic uncertainty return, these strategies are back. Following a multitude of purchasing pro- grammes from covered bonds to asset backed securities and corporates, Christine Lagarde has now added the €750bn (£681.1bn) Pandemic Emergency Purchase Programme to her repertoire. Meanwhile, Bank of England governor Andrew Bailey has committed an additional £200bn in bond purchases, adding to the £645bn it has invested in government debt since 2008, and effectively paved the way for negative in- terest rates. Could this mean that central banks may have reached their limits? Zurich and Tokyo offer inspiration for fur- ther purchasing programmes. Both the Swiss and the Japanese central bank have had equities on their shopping list for quite some time. And smaller central banks have also started purchasing shares. But the first quarter of 2020 was a painful one for Swiss taxpayers, as the Swiss Nation- al Bank (SNB) booked a loss of CHF31.9bn (£26.5bn) on its equity portfolio. The central bank has CHF32bn (£26bn), or 20% of its portfolio, invested in shares spread across 6,800 individual stocks, of which 1,000 are situated in emerging markets. By moving in- to stock markets, the SNB hopes to improve the risk-return profile of its exchange re- serves, which by the end of the first quarter amounted to CHF160bn (£132.6bn). By mid- 2016, the central bank had an equity portfo- lio of CHF120bn (£99.5bn). In addition to investing in equities, the SNB also aims to spread its exchange reserves over the broad- est possible spectrum of currencies, issuers and instruments in order to book higher returns over the long term whilst reducing earnings volatility.
Issue 94 | July 2020 | portfolio institutional | 39
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