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'Lack of knowledge' to create high volatility – RCM

EUROPE - Pension fund investors are being warned there is likely to be even higher market volatility in 2008 until all parties within the finance sector understand the true value of investments such as asset-backed securities and structured products.

Andreas Utermann, chief investment officer of RCM, a specialist equity division of Allianz Global Investors, has predicted "the next six months could still have surprises in store" despite central banks' attempts to stabilise economies because the unprecedented nature of reaction to the credit crunch means it could still take time to understand what has actually been happening in the markets and why.

"The picture was like something from the ‘30s and not at all consistent with a modern economy. Banks stopped lending to one another and the market dominated by rumours about difficulties at major banks. For a few days, the financial markets held their breath and stared down into a financial abyss," said Utermann.

He continued by suggesting while the central banks' first monetary steps have restored basic confidence among banks, there is unlikely to be any concrete understanding of the scope of the financial crisis to emerge until banks, regulatory authorities and auditors can see what the real value of these products are.

"After a long phase of steady growth in equities, risk and opportunities will be evenly distributed in 2008. We will have to be braced for more rounds of sharp market fluctuations," added Utermann.

That said, he predicts the ‘uncoupling' of US and other economies, as mentioned by the OECD yesterday, could be smoothed by the "growth giants" of India and China because while consumer spending has in the past been the dominant factor in growth rates, rising markets in countries such as China means gross domestic products (GDPs) are likely to be driven by other nations. (See earlier IPE story: Economies to be hit, but miss recession - OECD)

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com

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