Bavarian fund buyers keep faith in economy

Almost three quarters of delegates said they expect Germany to continue to outperform the wider European economy in the years to come (see chart). They were joined by Henderson’s long/short equity manager Richard Brown, who presented at the conference. He argued that the surprise shrinkage of the economy in the second quarter of 2014 was attributable to the mild weather during the first three months of this year.

Blame the school holidays

“That brought demand forward into the first quarter,” he said. Brown (pictured below) also played down the slump in industrial production in August, which contracted by 4% from July to August, though the German economy is expected to be impacted quite strongly by the Russia sanctions and the slowdown of the Eurozone and the Chinese economies. The drop was indeed the biggest since January 2009.

“The industrial production print was scary, but I think we will see that corrected.” Brown underpinned this by referring to the planning of school holidays, which were mainly scheduled in August in Germany’s key economic regions, saying it was now time for the long-awaited wage hikes in Germany, which would benefit consumer-related stocks.

Wolfgang Bauer, the German manager of the M&G Global Macro Bond Fund, said he is ‘cautiously optimistic’ about the German economy, but not really when it comes to the prospects for bonds. “If we look at investment-grade corporate bonds, German companies trade very tight. “We for example own Deutsche Telekom’s dollar-bonds instead of their euro-denominated bonds, taking advantage of a higher yield for these bonds in the US market.”