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US ELECTION: impact on European asset managers

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EUROPE - Europe’s asset management industry can expect a short-term rally on equity markets following the likely re-election of George Bush as US president, though this rally has less to do with his victory than with economic fundamentals, experts said.

Felix Adrian, head of investments and asset allocation at Cominvest, expects equity markets to gain an additional five to seven percent by the end of 2004 - if Bush wins - bringing them slightly higher than the level at the end of 2003.

However, he attributed the gain not to Bush’s likely re-election, but rather to such factors as continued brisk global economic growth, an undervalued equity market and pent-up liquidity among investors.

“Bush’s security message is not really having an impact, as the markets remained unconvinced that the world is safe from terrorism. Consider that we still have Bush and bin Laden as arch enemies of one another,” Adrian told IPE from Frankfurt following the US election.

In 2005, Adrian believes that global growth will slow to a moderate pace, which will dampen equity markets. For the bond market, he sees falling prices as interest rates begin to creep up amid inflation pressures, including a high oil prices.

Finally, Adrian sees a further decline in the value of the dollar, as the Bush administration continues to pursue a policy of benign neglect.

Rainer Buth, partner at Faros Consulting, a new investment advisor to German institutional clients, agrees with Adrian that there will be a short equity rally, yet downplays its magnitude. “I’m guessing one to two percent by the end of the year,” Buth said.

“In the mid-term, we’re looking at returns from equities in the single-digits, perhaps seven to eight percent,” Buth said. “But on account of all the political and economic uncertainties we face, we’re strongly recommending investors to diversify their portfolios as best they can.”

Peter Dixon, an analyst at Commerzbank, said that if – despite early indications - Kerry were to win the presidency, “equity markets would move lower, purely as a result of the shock value and because the Democrats would hammer such key sectors as pharmaceuticals”.

Dixon added, however, that such a scenario would not change Commerzbank’s “medium-term view that equities are due some degree of rebound”.

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