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AGI warns on German Bunds

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EUROPE - Allianz Global Investors (AGI) has cautioned against exposure to German Bunds, arguing that the European Union’s bailout package means the country will further lose its status as a investment safe haven.

Speaking in AGI’s monthly market prediction, analyst Stefan Scheurer singled out emerging markets as an area for continued growth, with Asia in particular an attractive region.

He also believed that industrialised nations were likely to have seen the last of an inflationary low, with devaluation soon to be a risk factor again.

Investors should shy away from cash holdings with inflation set to rise again, AGI warned.
“Cash appears to be the worst solution. For investors it is all about ‘real assets’, ie, assets which at least protect buying power and thus maintain living standards over the long term. In addition to commodities and commodity equities, these certainly also include gold.”

He added: “Looking to the months ahead, the interest rate curve should steepen slightly, starting with the long maturities, in expectation of improved growth and thus higher inflation.”

Scheurer also said that the German Bund market would likely start falling out of favour, despite Germany’s reputation for financial stability.

“German Bunds are clearly losing favour among investors. Not only owing to Germany’s declining importance as a ‘safe haven’ in the euro-zone, but because the debt problem of the EU countries might also entail possible obligations in connection with the guarantees for the rescue parachute.”

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