Deutsche AWM’s Wöhrmann and Brown see a brightening picture across regions
Co-CIO’s of Deutsche Asset and Wealth Management, Asoka Wöhrmann and Randy Brown, see improvement in the US, stronger growth in Asia, and stabilisation in Europe.
When the rumour started to circulate, unease once again began to spread. Ac¬cording to an SMS that made its rounds in Cyprus, savers would have to face another levy on their deposits. In the end, people only occasionally queued up in front of the ATMs, and the mixture of fatalism and calm, which had already stifled any feeling of panic in other parts of the European currency zone, soon reappeared on the Mediterranean island.
Fears that investors in peripheral eu¬rozone countries would react with a run on their banks due to the Cyprus bail-in turned out to be unfounded. In fact, quite the opposite happened. The decrease in the Target II imbalances shows that the flight of capital from the economi-cally weak peripheral countries is over and even begins to reverse. The rise of bank deposits seen over the past months in the peripheral countries of Spain, Greece and Portugal signals a rise in confidence among investors. This is proof that the systemic risk has fallen considerably within the eurozone. But beware. High debt levels compared with GDP and low competitiveness are still negative factors for Italy, Spain, Greece and even France.
Figuratively speaking, the eurozone is no longer in intensive care thanks to the liquidity assistance of the ECB. Despite a slow recovery the monetary union is still, however, hospitalised. The economic stagnation predicted at the begin¬ning of the year is likely to be less achievable now and a 0.25% dip in GDP in 2013 is now probable. Italy is likely to make a significant contribution to the slight recession. After the unclear outcome of the elections and the prolonged difficulties in forming a government, a 1.5% decline in GDP is expected (pre¬viously: -0.5%).
The picture in Germany is looking rosier: The economy should continue to grow by 0.75%, while in France, the eurozone‘s second biggest country, GDP is at any rate likely to stagnate in 2013. In view of the economic crisis, it is even more important to the ECB to solve the agonising credit crunch in the peripheral countries. After all, the distorted transmission mechanism is continuing to restrict growth. As early as December 2012, ECB Executive Board member, Joerg Asmussen, said that the interest rate for loans in the eurozone is determined not only by the solvency, but also to a considerable extent by the residence of the borrower. It now seems to be only a matter of time until the ECB dares to make a further advance against the fragmentation of the credit market.
The global economy is receiving more growth impetus from the USA than from Europe. Economic momentum could be fueled by private consumption. The Fed‘s new flow of funds report created a surprise when it stated that US households had recently increased debt from $13.32trn to $13.45trn. This was possible because – after years of debt reduction – households once again gained some financial flexibility (see graph on the next page). The first notable rise in debt since the third quarter of 2008 could signal an end to the so-called balance sheet recession. The revival of the employment market as
Set for growth
Thanks to globalisation, the location of the head office and the factory are be¬coming less significant while sectors and market positioning within the sectors are gaining importance from an investor‘s point of view. In a climate of wea¬ker growth in the industrialised countries the dynamic economic performance in many emerging countries represents a real opportunity for many western com¬panies.
The key data for promising companies show that they are globally positi¬oned, are actively involved in sectors with good future prospects and are innova¬tive. This can also be seen in the companies’ balance sheets. Around 45% of the companies in emerging markets have, over the past five years, increased their revenues by an average of more than five percent annually and their profit by more than ten percent. In industrialised countries, this was the case for no fewer than 19% of companies. Many of these companies are among those which successfully benefited from China‘s ascent and therefore continue to offer good growth prospects.