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Impact Investing

IPE special report May 2018

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Germany: Politics threat to stocks

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German investors have witnessed significant stock market gains in the past months but Ulrich Lingner who heads the board of management of the DM1.3bn pension fund at Philips in Hamburg remains optmistic about market prospects.

Lingner, who has responsibility for investment strategy for equities, bonds and property says that the fund will be increasing its holdings in foreign equity. The current asset allocation is 20% in German equity with 6% international with the bulk of the rest in bonds.

He believes that for the next four to eight weeks the stock market will be moving sideways" from between 4200 and 4500. He adds: "In September, October, depending on interest rates and the economic situation we have the chance of reaching new highs.of perhaps 4750 but for the end of the year a realistic forcast is between 4300 and 4500."

He does not see substantial pressure on interest rates from the domestic economy into 1998 but that the dollar's appreciation presents problems. If the dollar in-creases to DM1.95 then the Bundesbank will increase short term interest rates, but if not, then economically there is no danger for interest rates in Germany."

He expects German companies to display good profitability in 1998 adding: "I am not pessimistic for the development for the development of the German stock market."

In terms of stock selection he says: "I think the old favourites are the new favour-ites." He highlights the car industry and the financial sector and says that the banks and insurers are moving into a period of good profitability which will increase in 1988.

"There is pressure on the banks and insurance companies to make themselves fit for the single currency," he adds.

He predicts that the long term interest rate will range between 5.5% and 6% and he believes that the shape of the yield curve will get closer to that in other European countries with short term interest rates increasing more thanlong term interest rates.

He identifies a significant risk over tax reform saying, "You see a discussion in the German parliament about tax reform but I think that at the moment politics is not very flexible and these changes are not realistic.

"Signals from German politics are not so good for the stock market. "

However on the whole he is confident of steady market progress, describing as fantasy any idea of an amazing bull run or of 25% losses.

John Lappin"

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