Pick your country well for fixed income returns, says David Zahn at FTI

David Zahn, head of European Fixed Income at Franklin Templeton Investments, says
that opportunities exist if investors choose wisely.

David Zahn was promoted to head of European Fixed Income at Franklin Templeton Investment in April this year, with a view to developing the group’s fixed income offering in Europe.

The region, as noted by investors, has faced special risks in recent years, linked to issues such as the eurozone sovereign debt crisis, which created significant spreads between financial instruments ostensibly issued within
the same currency block, and despite a common interest rate.

At the time of his appointment, Zahn noted the need to ensure a correct bottom-up skillset to deal with the risks specific to European financial instruments, and developments such as Solvency II regulations, which could have an impact on the demand for bonds.

Growth in Europe – as subsequently suggested by purchasing manager data from a number of eurozone countries through the summer – would be a trigger for further activity in the market, he said then.

However, it has also been the case that because of the European debt crisis, there has been an increasing propensity for investors to seek out fixed income investments globally.

Country review

Looking more recently at the situation facing Europe’s various economies, Zahn has again noted the need for fixed income investors to be careful in their choice of country, when seeking to tap investment opportunities.

“Given that the eurozone finally returned to slightly positive growth in the second quarter of 2013, and that the chances of a break-up of the single currency bloc seem to have faded, it would be tempting to conclude that sentiment about the outlook for the eurozone had also changed,” he says.

“And yet, pessimism about economic conditions in Europe remains widespread, with few observers believing that the resumption of growth over a single quarter heralds the start of a full recovery.

“Many observers believe that the more troubled economies – such as Spain, Italy and, to a certain extent, France – will continue to hold back the euro bloc.”

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