2013: Europe is discharged from intensive care, says DWS

Europe has made progress this year in mastering the national debt crises, and systemic risks will diminish during 2013, says Asoka Wöhrmann (pictured), head of global fund management at DWS, the €140bn retail asset arm of Deutsche Bank.

“Both the initial positive results from the adjustment processes in crisis-ridden countries supported by the decisive monetary policy pursued by the European Central Bank have contributed to a more buoyant view of the situation,” he said, speaking at a conference in Frankfurt.

“We have now passed the lowest point. Europe is being discharged from intensive care,” he said, noting a “remarkable, steady recovery” in the balance of payments figures of peripheral Eurozone countries. This year Ireland generated a surplus and, in 2013, the same could apply to Portugal and Italy.

Any optimism generated thanks to the improvements in the countries’ economies is held in check by the fact that the national debt crisis is far from over, says Wöhrmann.

European government bonds continue to provide only negative returns. “The concealed asset transfer from savers to debtors therefore continues unabated”, says Wöhrmann. DWS does not believe a future hike in inflation in the core markets is an issue, but as a result of the low nominal interest rate offered by bonds, financial repression will continue to dominate investment strategies.

DWS’ financial repression portfolio has shown solid results, with considerably lower systemic risk prior to the year end.

In Wöhrmann’s view, in periods of financial repression, equities in fact offer the best protection from inflation.

The DWS fund management team assumes that political decisions will continue to dominate bond markets, even if concerns about debt escalation are currently in the background.

“Euro money markets anticipate base rate reductions”, according to Stefan Kreuzkamp, who heads up bond fund management at DWS in Europe. “The zero rate policy being pursued by the four major central banks means an increasing danger of negative interest rates”.


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