talanx group annual report 2011 en

Overall assessment of
the economic situation
Capital markets
Non-financial
performance indicators
Corporate Governance Remuneration report Events of special
significance
Equity markets were extremely volatile throughout 2011. In the first
quarter, the disastrous consequences of the Tsunami in Japan sent
global markets tumbling for a short while. Boosted by a healthy
earnings season, however, markets recovered over the course of
the first six months. Escalation of the European sovereign debt and
banking crises saw global equity markets record major losses in the
third quarter of the year. Germany’s DAX index shed almost 2,500
points within the space of a few weeks, losing almost a third of its
value, and the picture for the EURO STOXX 50 was similar. Although
European markets managed to claw back some lost ground in the
final quarter, they closed the year deep in the red, with the DAX
shedding almost 15% and the EURO STOXX 50 around 17% of the respective
prior-year values. The American indices fared much better:
the Dow Jones ended 2011 with a performance plus of around 5% on
the previous year, while the S&P 500 closed virtually unchanged.
Movements on equity markets in 2011
31.12.2010 = 100
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Yields on 10-year government bonds in 2011
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Dow Jones
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DAX
United
Kingdom
USA
Germany
In 2011, bond markets were dominated primarily by the unresolved
debt and credit crisis afflicting the GIIPS countries (Greece, Ireland,
Italy, Portugal, Spain). Government- and covered bonds, as well as
downstream asset classes such as bank- and corporate bonds were
all targeted for downgrading by the rating agencies. Despite two EU
Risk report Forecast and
opportunities report
summits, the situation was no less fraught in the fourth quarter of
the year. As the mood of gloom and doom surrounding the “big”
GIIPS countries, notably Italy, deepened, the markets once again
turned their attention to the looming banking crisis. In our opinion,
banks are, in many cases, no longer able to perform their role of
financial intermediaries, and inter-bank trading is hardly taking
place at all. As we see it, the gap between secured and unsecured
money-market trading bears all the hallmarks of a renewed crisis.
The liquidity supply is principally provided through extended central
bank lines, e.g. the 3-year tender at 1%, which enjoyed a take-up
volume of some EUR 489 billion. The ECB remained active on the
secondary market with its purchasing of government bonds issued
by countries on the Eurozone periphery, while a new programme to
buy up covered bonds was also implemented. The need to bolster
confidence in the banking sector increasingly came into the political
focus, too.
The positive mood at the start of the year paved the way for slightly
higher yields in the first few months of the year under review, with
10-year government bonds almost hitting the 3.5% mark at the start
of April. From April on, however, the mood deteriorated considerably
due to the unresolved debt crisis, and yields fell dramatically.
With yields listing at well under 2%, the situation became even more
acute in the third quarter, before the market swung round in the
fourth quarter to produce yields of around 2.3% in November. That
said, yields slumped markedly again towards the end of the year in
expectation of very high debt-refinancing demand predicted for
the start of 2012. On 31 December 2011, 2-year government bonds
listed at 0.14%, 5-year bonds at 0.76%, and 10-year bonds at 1.83%. At
some points in the year, short-term debt was even being traded at
negative yields, a phenomenon reflected in central bank policymaking.
The ECB has adopted a much more cautious stance since
the interest-rate hike of July. In November and December, interest
rates were cut by 0.25 percentage points respectively to currently
1.00% (interest rate on the main refinancing operations).
With regard to the market for government bonds, the trend toward
investing in the few remaining safe havens continued. That said,
credit products remained very stable up to the end of July. Not
until the banking crisis began to take centre stage did bank issues,
particularly in the area of subordinated debt, start to stutter badly
here too.
The market for new issues was extremely buoyant in the first three
months of 2011, especially for covered bonds. Around 50% of issues
in the entire year under review were transacted in the first quarter.
As the crisis worsened, the market for new issues virtually dried up
across the board; capital-market experts expect pent-up demand
for refinancing programmes to be very high indeed.
Talanx Group. Annual Report 2011
39