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Growing number of investors fear for Germany
The number of fund managers questioning the integrity of Germany’s economy has trebled in the past month.
Investors are questioning the financial stability of Germany and France as the focus shifts from peripheral Europe to the core amid the ongoing financial crisis.
The number of investors questioning the integrity of Germany’s finances has trebled in the past month, with 32% expecting a 'negative surprise' from the country in the coming year, up from 10% in June.
Gary Baker, head of European equity strategy at Bank of American Merrill Lynch, said: ‘Germany has been a source of security in what has otherwise been a pretty dull investment picture for Europe.
‘If there were really a serious challenge to economic growth, optimism and performance in Germany then that would not be good news for Europe. If you are looking for another leg down in terms of European confidence it would be if Germany starts to be questioned as a source of stability.’
The figures come from a survey of 261 fund managers conducted by Merrill Lynch Bank of America between 6 July and 12 July.
The poll coincides with the publication of the ZEW survey today, a measure of investor confidence in Germany, which dropped for the third month in a row in July.
Outlook for France darkens
Fund managers have also turned their attention to France, with 55% expecting negative developments in the country’s economy in the coming year.
Baker continues: ‘At this point in time the bond market is pointing very much in favour of France and spreads have started to compress, but I don’t think it has escaped investors that the French problems are still fairly severe in terms of budget deficits.’
However, although France is under greater scrutiny, worries about Spain and Portugal have eased.
‘There’s much more concern about France than Italy, which isn’t what the bond market is telling you, so ultimately those two things will have to resolve themselves,' Baker said.
‘People think that if there’s a surprise coming it would be that much more dramatic if it came from France than perhaps if it came from Italy, Spain or Greece, where expectations are that much lower.’
The impact of the worsening outlook for core Europe translates into an expectation of poorer corporate profits in the region, with 61% of managers expecting worsening returns, double that reported in June.
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