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German asset managers still bullish despite vote

GERMANY – Asset managers in Germany are still bullish on German equities despite the election uncertainty.

They reckon they will continue to perform well as strong economic fundamentals outweigh political factors.

“We probably will see the blue-chip DAX underperform slightly this week vis-à-vis other indices because of the uncertain political situation,” said Georg Schuh, chief investment officer at Deutsche Asset Management in Frankfurt.

“However, as we go forward, I expect the German equity markets to continue to perform well. That’s because German companies are still profitable yet undervalued, their cash flow situation is good and interest rates remain low.”

Schuh was speaking a day after the German federal election which produced unprecedented political stalemate.

A “grand coalition” involving the CDU/CSU and the SPD, which are the biggest parties, is seen as the most viable solution to the impasse.

Klaus Esswein, managing director at State Street Global Advisors in Munich, agreed that economic fundamentals will sustain a solid performance of German equities, noting that “technical resistance” was around 5,000 points.

After falling more than 100 points at the start of trading this morning, the DAX recovered slightly by the afternoon.

There was also no indication of an investor flight to bonds. The euro-denominated Bund future was off slightly by the afternoon.

Esswein also said the asset class was gaining support from the fact that big investors active in Germany did not regard the current political situation as a crisis. “The investors realise that while it will take time and will be difficult, some government will emerge,” he said.

And Wilhelm Heinrichs, portfolio manager at Allianz’s dit, thinks that if a grand coalition emerges, this will not put further economic reform on hold.

“With the exception of the far-left party (which will be represented in parliament), all German parties understand the urgent need for further reform on taxes and in the labour market,” Heinrichs said.

He added that it was another factor why he was optimistic about the future performance of German equities.

The bright outlook for German equities may prompt German pension funds -
most of whom have between 70 and 90% invested in fixed income - to allocate more money to the asset class, though experts say this would happen
incrementally.

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