Two-thirds of Germans believe their country is not creditworthy
The contrast between institutional and retail investors’ views on Germany’s creditworthiness became apparent in research by ING Investment Management, which found two thirds of German citizens do not believe their government is creditworthy.
This stands in contrast to the major ratings agencies, which still rate Germany AAA, and institutional investors, whose strong demand for Bunds last year pushed them twice into negative yields.
As the break-up of the euro seemed ever more likely yesterday, investor appetite for safe haven Bunds pushed their yields down to 1.27%. This stands in contrast to equivalent sovereigns from Spain (6.66%); Italy (5.94%) and bailed-out Greece (30.13%).
But most German citizens questioned recently in the survey commissioned by the Dutch investment house they would not lend Germany money, and 20% said the euro would not survive to 2017.
Their risk aversion is shown by two thirds favouring savings accounts and cash, followed by fixed income.
Susanne Hellmann (pictured), German head of ING Investment Management, said: “All these classic safety-oriented favourite forms of investment are tied to the euro.
“It is surprising that Germans mistrust their state and the euro, but still invest the lion’s share of their savings in classic bank products, which depend heavily, for better or worse, on the shared currency.”
She urged investors to diversify between different asset classes, currencies and regions.
She highlighted emerging markets debt as one attractive alternative.
“Precisely against the backdrop of the euro crisis it is sensible to invest also in different currencies, to profit from the growth stories there.”
She said about 85% of the $7.6bn outstanding EM debt is local currency – in contrast to the 1990s when much of the debt was issued in US dollars.
“This development offers new opportunities to investors in the Eurozone. They can profit not just from attractive coupon payment rates, but also from the currency appreciation.”
Between 2002 and 2009 FX exchange rates contributed about one third of the total returns from the asset class, she added.
ING Investment Management has funds such as the 12-year old ING (L) Renta Fund Emerging Markets Debt Local Currency fund, to participate in local currency emerging markets debt.