Though households and individuals in many continental European countries have long opted for a conservative approach to managing their savings, no country has a more conservative approach to savings and investment than Portugal.
However, things are starting to change for Portuguese savers as the industry becomes more diverse and risk appetites grow. Raul Marques, Global Head of Asset Management at Banif Investment Managers, an industry leader in Portugal, discusses how the industry has evolved, and what savers and investors can look for.
Typically, how do your savings rates compare to other European countries, post-crisis?
Until the mid 1990s, Portuguese savings rates were quite high by European standards. For a long time households would save over 20 percent of their available income. That changed for a couple of reasons; interest rates came down as people changed their standards of consumption and savers began putting more money aside to buy houses.
Until five or six years ago, the savings rate in Portugal came down significantly, and then in 2007 to 2008 it reached an all-time low of seven percent of available income. Since 2011, however, households have been saving more again. Savings rates are now quite similar to the European average of around 13 percent.
[T]hings are starting to change for Portuguese savers as the industry becomes more diverse and risk appetites grow
What types of products attract the typical Portuguese savers and why?
The average risk profile of Portuguese savers is conservative, with a distinct preference for funds such as money market and fixed income. Equities and other risky assets still account only for a small percentage of the overall portfolio of savers. You can observe this in a few continental European countries more than in others. In countries like Portugal, Spain and France, deposits and other conservative products make up the bulk of the savings market.
It is true that Portugal remains one of the most conservative countries in that context – it has to do with the DNA of the Portuguese savers. It is also related to the need for more literacy among Portuguese savers in general. However, over the past few years, the financial crisis has led to an increase in risk premiums, and a high-yield situation in fixed income markets has helped maintain the status quo. Recently, you could find decent and interest fixed income products that would yield anywhere between four and seven percent a year – sometimes even double digits on an annual basis – and this helped reinforce the idea that conservative investments are more desirable.
That is changing, however. As interest rates have been dropping significantly, savers realise that they will have to save more on a long-term basis for retirement. Also, the average level of literacy for Portuguese savers is rising, so the risk profile for the Portuguese savings market is changing. This is leading to people taking
more risks.
How is the Portuguese industry responding to these changes?
This is beneficial for the industry as a whole. In the near future I’m sure there will be a more balanced situation for short-term products, which are quite conservative, combined with other sorts of products like equities and more risky instruments. This will lead to a situation where people will be able to save for the short, medium and long-term. For a long time, most of the Portuguese savers and people who invest in mutual funds have been saving for the short or medium term, so what you see is a fairer market where savers have more balanced portfolios.
How has financial disintermediation impacted Banif?
It has been positive and helpful. Banks and similar financial institutions have been putting a strong emphasis on fee-based businesses, over the past two or three years. Off balance-sheet companies such as third-party asset management has been a strong focus.
There has been offers and demands in the business to focus on these companies, so we have been seeing more looking to the capital markets to finance their business instead of relying 100 percent on bank loans. At the same time, investors have been willing to put more money in a wider range of companies, leading to a broader and more diversified investment environment.
Over the past three years there have been interesting yields in Portuguese treasury and corporate bonds – at investment and non-investment grade. This has been leading again to a broader, more diversified market with a higher number of companies coming with investors looking to allocate their money in fixed income alternatives. That has been quite good for the Portuguese mutual fund business as a whole, and more specifically to the Banif savings arm, as it becomes more diversified.
