The latest trend reports reveal that the majority believe Europe will remain in recession throughout 2013, while countries including France, Germany, Ireland and Spain will run into further difficulties during the next 12 months.
The survey, conducted in Q4 2012, found that a significant number believed Germany’s export-led market could falter as a result of reduced demand from Europe and China, while German and Dutch fund managers voiced concerns over the large number of interest-only mortgages in the Dutch market.
Elsewhere, Spain and Ireland’s deficit targets were cited as “unrealistic” Concerns were also raised over the large amount of Irish sovereign debt owned by Michael Hasenstab of Franklin Templeton. Hasenstab is believed the own around 10% of the country’s outstanding debt, and some managers felt that his aggressive purchasing of bonds was the reason behind Ireland’s good performance in 2012.
Defensive mechanisms
The outlook for France was generally negative and its fiscal problems are predicted to continue due to the government’s policy of increasing taxes and avoiding spending cuts. Hubert Lemoine of Schelcher believed that the country will be left behind as its European neighbours implement reforms, while a number of others highlighted poor domestic demand as a potential source of difficulties.
Many fund managers indicated that they are constructing defensive portfolios in preparation for a difficult year. BlackRock representatives predict that European yields will be volatile for a prolonged period, although they do expect positive returns.
However, there was high praise for President of the European Central Bank, Mario Draghi, with many commenting that his commitment to the bank, along with new banking regulations, will have a positive impact on the recovery.
Alastair Wainwright, S&P Capital IQ fund analyst and sector head, said: “Importantly, the fund managers we spoke to think that ECB President Mario Draghi is doing a good job and the political landscape in Europe is more stable.”
