Persistently low interest rates had various effects on sectoral financial investment in Germany in 2019. According to the Bundesbank’s latest Monthly Report, while households generally preferred low-risk and liquid forms of investment, it was possible to observe a shift from low-risk deposits to relatively riskier securities in the case of insurance corporations and pension funds. The Bundesbank’s economists point out that it is not yet possible to comment on the initial impact of the coronavirus pandemic as the financial accounts data are available only up to the end of 2019.

Households prefer low-risk forms of investment

“Household’s acquisition of financial assets in the form of deposits reached a new record level in 2019,” write the Bundesbank’s economists in the Monthly Report. Claims on insurance corporations and pension funds also represented a key form of investment for households. The rising percentage of investment fund shares indicates a slightly greater awareness of risk and return. Acquisition of shares also maintained its previous year’s level, according to the Bundesbank’s experts. Nevertheless, the fact that deposits and insurance claims continued to play a significant part shows that households still preferred low-risk and liquid forms of investment.

In the case of non-financial corporations, there was a certain tendency towards overnight deposits in 2019. “This development occurred even though the corresponding interest rates on short-term deposits were broadly in negative territory, which was not the case for households’ deposits,” the Bundesbank writes. Overall, non-financial corporations’ acquisition of financial assets was once again considerably weaker than in the previous year and is now only just above zero. In addition to the build-up of deposits, it was only in equity that large inflows were recorded. As in previous years, strategic investments were thus the main driver of investment decisions by non-financial corporations, even though, once again, there was a slightly increased preference for liquid and safe financial investments.

Financial corporations opting for riskier investment instruments

Against the backdrop of persistently large inflows from households, there was a significant expansion in financial investment in the case of insurance corporations and pension funds, write the economists. Besides debt securities and equity, investment fund shares, as the most important form of investment, accounted for almost half of the total acquisition of financial assets. In parallel with this, 2019 saw a continuation of the sharp reduction in longer-term bank deposits, which has been taking place since as long ago as 2010. In the Bundesbank’s view, this reinforced the shift from low-risk deposits to relatively riskier securities observed in previous years.

According to the current issue of the Bundesbank’s Monthly Report, the acquisition of financial assets by other financial institutions (including investment funds) weakened somewhat in 2019, following strong inflows in the preceding years. This was mainly due to the fact that shares were acquired on a significantly smaller scale than in previous years, although there has been an apparent shift from listed shares to significantly less liquid other equity within this asset class. There was a strong increase in the acquisition of financial assets in the form of investment fund shares and debt securities. The economists write that it is not possible to draw any clear-cut conclusion about developments in the riskiness of financial institutions’ financial investment from these observations.