Risk is back on.
Around a third of investors want to be “more agressive” when it comes to taking risks now that Greece is making deals with its creditors, according to a Barclays survey.
There are two types of investing strategies when it comes to risk — risk-on and risk-off.
With risk-on, investors look for high returns in assets that change price quickly. Traditionally the easiest and cheapest way to do this is to load up on shares.
The risk-off strategy is aimed at protecting money rather than making it. People flee to safer assets — usually the sovereign bonds of big countries like Germany — because they exhibit smaller price movements and are highly liquid, meaning they can be sold quickly if you need the cash.
Investors go risk-off in times of economic uncertainty or a crisis, such as the recent Greek debt crisis.
Clearly investors now think the worst of that is behind us. Fewer than 90 of the 1007 people surveyed by Barclays say they feel more conservative since Greece struck a deal to stay in the Euro earlier this month.
They’re a confident bunch — 38% of them say they have a high “level of conviction” around trades they’re considering, while only 15% said have a low level of confidence. 43% are neutral.
The chart below shows that shares are by far the most popular asset class for risk-hungry investors, while commodities have fallen completely out of favour because the Chinese slowdown has reduced demand for industrial materials such as iron ore.
This is where investors are thinking of making their bets:
This appetite for risk and increased confidence is surprising seeing as there are still a lot of negotiations to be had between Greece and its creditors.
The country must pay back €3 billion (£2.12 billion, $US3.3 billion) to the ECB by August 20 and is working to secure a third bailout worth €85 billion (£60 billion, $US94 billion) over the next three years.
But that’s why they call it risk.
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