Finding Your Financial Confidence

Transcript

1 Private and Business Clients Italy PWA Milan Speaker Event Finding Your Financial Confidence Tiziana Bocus Director, Head of DPM & Advisory January 30 th 2013

2 Agenda 1. Where does the crisis come from? 2. From housing and private credit boom to sovereign debt crisis 3. Where do we stand now 4. Scenario for How important is financial planning 1

3 Where does the crisis come from? The 2000s real estate and credit boom 1. In response to the dot-com bubble burst of 2001 the US authorities engaged in an expansionary monetary policy that led to exceptionally low interest rates for a prolonged period of time 2. An extensive financial innovation and deregulation phase brought to light financial instruments that contributed to boost easy credit to sub-prime borrowers 6 Short term interest rates in the U.S., Real estate bubble: house prices increased by 85% in the 5 years that followed the dot-com bubble burst Credit bubble: sub-prime mortgages grew from 150 to 650 billion ($) between 2001 and 2005 Economic growth was boosted by private debt and the construction sector (in 2005 the number of new houses was double with respect to 10 years before) 2

4 Public intervention to avoid a great depression The trigger of the financial crisis was the biggest bankruptcy of American History: the collapse of Lehman Brothers Between September and October (2008), the S&P 500 index lost 26% of its value. The panic selling was contrasted in the United States (and elsewhere) by public authorities in order to avoid the great depression that followed the 1929 stock market crash Public intervention prevented the great depression vicious cycle to emerge Negative wealth effect and liquidity crisis A Keynesian response leads to massive monetary policy expansion, government-funded banks bailouts, and public stimulus packages Demand and confidence slump. House and commodity prices declines and rising unemployment Banking crisis and stock market losses 3

5 In the meantime emerging markets continued to grow The resilience of emerging economies contributed to limiting the depressive impact spreading from the Western economies and supporting Global GDP (China and India grew by 9% and 7% in 2009) While Europe is strongly impacted by recession: although most countries (ex. UK, Ireland and Spain) did not experience a real estate bubble, they were highly indebted Change in Gross Domestic Product (GDP),

6 From housing and private credit boom to.. sovereign debt crisis The magnitude of public intervention brings to the attention of the financial markets the sovereign debt sustainability issue The Euro Area s vulnerability lies in the non-complete integration among its members, mainly at political level. Is there each member s sovereign debt backed by the EMU? The Maastricht Treaty gave birth to a monetary union that is not corresponded by a political union: there is a European Central Bank, but no European Government! 120 Source: IMF Public debt in the Euro Area Public debt, before and after the crisis Source: IMF Debt-to-GDP (%) Debt-toGDP (%) ,4 60 PIIGS Eurozone (GDP weighted) Euro area Major advanced economies (G7) Emerging market and developing economies 5

7 Growth and rates: where do we stand GDP levels in 2013 compared to pre-crisis levels (2007=100) 168,6 122,2 104,5 100,5 92,6 94,5 Source: IMF Brazil China France Germany Italy Spain United States 105, year interest rates in main advanced economies, United States Germany Italy Spain France Source: Bloomberg 6

8 Italy: why structural reforms are so important 25% 20% Productivity growth before and after the financial crisis Productivity growth Productivity growth Source: OECD 15% 10% 5% 0% -5% -10% Spain Italy Euro area France Germany Japan OECD - Total United States United Kingdom The recipe for growth: Implement structural reforms Re-balance the fiscal consolidation between spending cuts as opposed to tax increases Achievement of liberalizations and privatizations 7

9 Scenario for 2013: risks and opportunities in the bond markets German Yield Curve and Yields After Inflation Post-crisis expansionary monetary policy led to extremely low interest rates This implies that so-called risk-free assets (such as Bunds or Treasuries up to 10 years maturities) return negative real yields to their investors Therefore in the current macro-picture capital protection cannot be pursued without taking on selected risks Yield opportunities can still be found in sovereign bonds of European peripheral countries Corporate and high yield bonds in the United States and Europe offer attractive valuations Emerging markets bonds are well supported by strong fundamentals 8

10 Scenario for 2013: attractive valuations in the equity markets We expect a growth in earnings at global level in 2013 The most interesting valuations are for companies in the United States and Europe with a major exposure to global markets, whereas GDP growth Europe will at best remain stagnant throughout 2013 Also selected emerging equity markets may perform considerably better in 2013 compared to 2012 Return genrator by time horizon (S&P 500), In a broader perspective, stocks with high dividends may still represent an attractive option - in particular in the current bond markets, dividend yield can easily exceed sovereign and corporate bonds yields 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1 Year Time Horizon 5 Years Time Horizon Change in Valuation Dividend Growth Dividend Yield 9

11 Scenario for 2013: Currencies and commodities Currencies: In order to boost competitiveness governments might pursue competitive depreciation This may lead to potentially dangerous effects on economic activity and export sectors 1,4 1,35 1,3 1,25 US dollar depreciation Japanese yen depreciation 1,2 75 1,15 1,1 EURUSD USDJPY Commodities - Precious metals will benefit from expansionary monetary policy - A growth pick-up in China may boost momentum for industrial metals - Outlook for oil is mixed: on the one hand growth recovery at global level will drive prices up, on the other hand downwards pressure will come from the increasing energy independence of the United States that is expected for the forthcoming years 10

12 How important is financial planning (1) 1. Insurance: Buy Term and Invest the Difference is an internationally known principle for defining priorities; first step of a safe plan is to ensure that immediate risk with high impact on customer financial stability (death, inability, etc) are managed 2. Retirement: healthy and lifelong population, with public welfare system backing, needs future economic stability 3. Investments: planning should include management of liquidity, reserve, life goals, wealth management, extra-performance, etc 4. Debt: for loan and other life goals not achievable trough investments Customer personal preferences are final guideline for defining financial planning priorities 11

13 How important is financial planning (2) Following steps are required for completing investment planning: define objectives/goals, timeline, final amount for each objective and priorities. For developing customer quantitative financial goals, time horizon for each objective and amount of future personal goals are required. Summary represent on life cycle all investment needs Estimate of final amounts makes it possible to evaluate the expected wealth. Estimated evolution of Life Cycle benchmark, composition of asset classes and financial markets. 12

14 Italy-Germany Spread on 10-year yields Source: Bloomberg Convergence Average : 25 basis points

15 Important information Il presente documento è stato elaborato ai soli fini dell evento PWA Milan Speaker Event del 30 gennaio Il presente documento è stato redatto da esclusivamente a scopo informativo e non costituisce e non può essere considerato un'offerta di vendita o di sottoscrizione, una sollecitazione ad acquistare o vendere quote e/o azioni di organismi d'investimento collettivo del risparmio o adesione ad un'offerta di servizi di qualsiasi genere. In particolare il presente documento non costituisce in alcun modo consulenza in materia di investimenti o ricerca in materia di investimenti e non è collegato con, e non costituisce la base di, qualunque contratto o impegno; lo stesso è stato predisposto senza considerare gli obiettivi di investimento, la situazione finanziaria o le competenze di specifici investitori. Le informazioni contenute nel presente documento si basano su fonti ritenute attendibili. Tuttavia e le sue società controllanti, controllate e collegate, nonché i suoi amministratori, collaboratori e/o dipendenti, non assumono alcuna responsabilità in relazione al presente documento né relativamente alle informazioni in esso contenute e non accettano alcuna responsabilità per eventuali errori od omissioni né potranno considerarsi responsabili per le eventuali perdite o danni di qualsivoglia natura che dovessero derivare dal fatto che si sia fatto affidamento su tale documento. 14

16 Pension Advisory What s about women (and retirement) Claudia Moggia Director, Head of Network and Cluster Development January 30 th 2013

17 Contents 1 Women and Men, which differences? 2 Society, behaviors and outcomes 3 The opportunity of planning 3/15/ :56:21 AM 2010 DB Blue template 16

18 Men and Female, do we really think there are differences? Biological Approach How different are women and men? And, on the other hand, how many common features do have men and women which lead them to be very similar? Is diversity biological or it results from environmental influence? Is diversity function/result of an Age? Halpern, Lamay, some others academics don t highlight differences among genders, deciding that there aren t any significant differences from different perspectives (among them for istance there are no differences in intellectual ability ) 3/15/ :56:21 AM FEMALE and MALE are potentially similar in every aspect. But. 17

19 Social differences Interaction with environment and role construction. Gender and culture Society (within space and time) does contribute in shaping: Players: Governments (legal order, welfare,..) Social Organizations (family, school, church, army..) Economic stakeholders (companies, markets) Mass media Individuals in each context Personal identity, Social identity, Subjectivity Donne non si nasce, si diventa [De Beauvoir, 1949] «Ciò che appartiene al maschile piuttosto che al femminile varia molto da una società e cultura all altra» [Mead, 1949] 18 3/15/ DB Blue template 18

20 Approach by stereotypes Opposite inclinations Source: Psicology tests, university of Turin - N=130; A.A /15/ DB Blue template 19

21 Contents 1 Women and Men, which differences? 2 Society, behaviors and outcomes 3 The opportunity of planning 3/15/ :56:21 AM 2010 DB Blue template 20

22 Women and Men. Social and demographic profile (changing) MALE Life expectancy at birth: 79,4 years Life expectancy at 66 years: 21,2 years Number of graduates: 25 out of 100 men - 25 yrs old FEMALE Life expectancy at birth: 84,5 years Life expectancy at 66 years: 24,8 years Number of graduates: 38 out of 100 women - 25 yrs old 537 Nobel Prize 15 Nobel Prize 50 % males between yrs old live with their parents 73 % are employed Average wage: euro per month 34% females beween yrs old live with their parents 49,7 % are employed. (30% are part time) Average wage: euro per month 95,7% of prison s population 4,3% of prison s population 3/15/ DB Blue template 21

23 Women Unemployed Belgium France Ireland Czech Republic Lithuania Germany Portugal Slovenia Greece Denmark Slovakia Cyprus Sweden United Kingdom Finland Netherlands Austria EU27 Poland Hungary Romania Estonia Spain Luxembourg Bulgaria Latvia Italy The rate of unemployed women between years old who: are not searching for a job but who would be availvable to work in Italy is 4 times higher than in Europe (16,6% vs. 4,4%) Source: Istat /15/ DB Blue template 22

24 Young Women Unemployed Tasso di occupazione anni Tasso di occupazione femminile anni maschi femmine Nord Centro Mezzogiorno Tasso di disoccupazione anni Tasso di disoccupazione femminile anni maschi femmine Nord Centro Mezzogiorno 3/15/ DB Blue template 23

25 Global Employment rate and average income Comparison anni anni anni anni anni 50 anni e oltre Source: Istat 2012 Femmine Maschi 3/15/ DB Blue template 24

26 Lower wages and.. 3/15/ DB Blue template 25

27 The big italian mother 31% of italians live with their mother, and 42,3% has their mother living at 30min of distance from their house Source: Billari e Dalla Zuanna La rivoluzione nella culla 3/15/ DB Blue template 26

28 Longevity expectation (risk)..more than 100 yrs MASCHIO FEMMINE DA A % DA A % % % % % % % % % Source: Progetica Analysis on ISTAT data ; Istat 2012 Number of centenarians will grow globally, from in 2011 to 3,2 million in Globally, every 100 women 60 + aged, there are 84 men of the same age and there are 61 men every 100 women age /15/ DB Blue template 27

29 Life expectancy is growing and numbers of years in retirement is growing Source: OCSE 2011 As of today the number of years we will spend in retirement counts for1/3 of adult life, on average 27 years for women 3/15/ DB Blue template 28

30 Women work less, pay less social security contributions BUT will live more A risk for our pension Socurce: Inps 2012 and Censis moreover pension is nearly the only income for retirement 3/15/ DB Blue template 29

31 Estimates of expected pension income for women - EXAMPLES 3/15/ DB Blue template 30

32 Women feel less insicure than men about their pension 3/15/ DB Blue template 31

33 Contents 1 Women and Men, which differences? 2 Society, behaviors and outcomes 3 The opportunity of planning 3/15/ :56:26 AM 2010 DB Blue template 32

34 From rationality to subjectivity Every woman has (is) a separate world SLEON UNE ÉDTUE DE L UVINERTISÉ DE CMABRIGDE, L ODRRE DES LTTEERS DANS LES MTOS N A PAS D IPMROTNCAE, LA SUELE COSHE IPMROTNATE EST QUE LA PMEIRÈRE ET LA DRENÈIRE SIOENT À LA BNNOE PCLAE. LE RSETE PEUT ÊRTE DANS UN DSÉRORDE TTOAL ET VUOS PUOEVZ TUJORUOS LRIE SNAS PORLBLÈME. C EST PRACE QUE LE CREAVEU HMAUIN NE LIT PAS CHUAQE LTETRE ELLE-MMÊE, MIAS LE MOT CMOME UN TUOT.. AOCICNDRG TO THE RTSLEUS OF THE RCASEREH OF ONE EISGNLH UESTIVRINY, IT DEOS NOT MTATER IN WCIHH OEDRR THE LRTEETS ARE ODRREED IN A WROD. IT IS OLNY IAPRNOMTT TAHT THE FSRIT AND THE LSAT LRTETES BE IN TIEHR PEALCS. ALL OEHTR LREETTS CAN BE ODREERD IN AN AITRRRABY OREDR, AND ONE CAN SLITL RAED THE TXET WUTIOHT ANY PLMOBERS. IT SEMES TO BE DUE TO THE FCAT TAHT WE DO NOT RAED ECAH LTETER STPLRAAEEY, BUT RAED ECAH WROD AS A WOLHE. 3/15/ DB Blue template 33

35 The value of planning for women Source: Ameriprise /15/ DB Blue template 34

36 Which solutions do women prefer? Trustness, flexibility, understanding 3/15/ DB Blue template 35

37 Pension Advisory for Women: understand their needs and commit to their protection 3/15/ DB Blue template 36

38 Planning does allow to improve the quality of life Up to date Indexes for wealth and well being (not only GDP): Arrows show indexes affected by Financial and Pension Planning AREE Abitazione Reddito Lavoro Comunità Educazione Ambiente Partecipazione civica Salute Soddisfazione Sicurezza Equilibrio tra lavoro e vita privata INDICATORI Rapporto tra persone e numero di locali Spesa per l'abitazione Abitazioni con strutture di base Reddito disponibile per il capofamiglia Ricchezza finanziaria Del capofamiglia Tasso di occupazione Tasso di disoccupazione a medio termine Redditi personali Sicurezza del lavoro Qualità delle reti di supporto Conseguimento di percorsi educativi Numero di anni in "educazione" Capacità degli studenti in matematica, lettura e scienze Inquinamento dell'aria Qualità dell'acqua Partecipazione al voto Consultazioni nell'attività legislativa Attesa di vita Stato di salute autoattribuito Soddisfazione per la qualità della vita Tasso di omicidi Tasso di aggressioni Lavoratori con orari di lavoro molto prolungati Tempo dedicato al tempo libero ed alla cura della persona 3/15/ DB Blue template 37

39 How Planning affects the quality of life (1 of 2) Income and expenses without Planning Source : Resolution Foundation: A NATIONAL DIVIDEND: The economic impact of financial advice. Finanza & Fururo

40 How Planning affects the quality of life (2 of 2) Income and expenses with Planning Source: Resolution Foundation: A NATIONAL DIVIDEND: The economic impact of financial advice. Finanza & Fururo

41 The bigger ambition: a comprehensive life cycle planning Income $60,000 $40,000 $20,000 -$10,000 Childhood You begin by being a financial drain to your middle-class parents at $10,000 a year or $184,000 until you leave the roost and that doesn t include college tuition. Your Financial Life High School and College You re starting to earn money (not much) and getting the education (expensive) to earn more. This is when you start with credit cards and student loans. Starting a family Your earnings start to take off and you settle down to start a family. With that comes your first house (down payment of about $30,000), mortgage, and the kids who now drain you $10,000 a year. You need an emergency fund of six months. You protect your assets with insurance. Growing your career and managing life s ups and downs You move towards your peak earning years and use this time to grow your wealth. You upgrade your house and save for your kids education ($100,000) and your retirement ($1 million). You may be unemployed (by choice or not) at times. You may divorce. You may have to care for your parents. All these could set you back Age (years) Your income could fall well before you reach retirement age. You continue to accumulate for retirement and plan how your nest egg will last for the rest of your life. Health issues start to crop up and you look to protect your health and assets. You may work longer because you need to or because you want to. Retirement If you ve been good about saving, you will enter retirement debtfree and comfortable for the rest of your life. If you haven t, the only option is to continue working if you can. Healthcare becomes a big expense. 3/15/ DB Blue template 40

42 THANK YOU! 3/15/ DB Blue template 41

43 Important information Il presente documento è stato elaborato ai soli fini dell evento PWA Milan Speaker Event del 30 gennaio Il presente documento è stato redatto da esclusivamente a scopo informativo e non costituisce e non può essere considerato un'offerta di vendita o di sottoscrizione, una sollecitazione ad acquistare o vendere quote e/o azioni di organismi d'investimento collettivo del risparmio o adesione ad un'offerta di servizi di qualsiasi genere. In particolare il presente documento non costituisce in alcun modo consulenza in materia di investimenti o ricerca in materia di investimenti e non è collegato con, e non costituisce la base di, qualunque contratto o impegno; lo stesso è stato predisposto senza considerare gli obiettivi di investimento, la situazione finanziaria o le competenze di specifici investitori. Le informazioni contenute nel presente documento si basano su fonti ritenute attendibili. Tuttavia e le sue società controllanti, controllate e collegate, nonché i suoi amministratori, collaboratori e/o dipendenti, non assumono alcuna responsabilità in relazione al presente documento né relativamente alle informazioni in esso contenute e non accettano alcuna responsabilità per eventuali errori od omissioni né potranno considerarsi responsabili per le eventuali perdite o danni di qualsivoglia natura che dovessero derivare dal fatto che si sia fatto affidamento su tale documento. 3/15/ DB Blue template 42