German fund hopes for boost from super Mario’s bond plan
EFFORTSE to stimulate economic growth across the ContinentC are u under way with the launch of a £46billion-a-mo £46billion-a-month bond buyingb i programme by the European Central Bank.
Similar to massive quantitative easing schemes instigated in the UK and the US in the wake of the 2008 financial crisis, the hope is that the plan – overseen by ECB president Mario Draghi – will be equally successful.
The idea is that by pouring money into a flatlining eurozone, borrowing costs for troubled economies will come down as bond prices rise and yields fall.
More money will be pushed into the financial system, stimulating lending to businesses and consumers and keeping the euro low against other currencies.
Asset prices – primarily equities – will also rise as investors look for alternatives to low-yield bonds. Germany, Europe’s powerhouse, has long been sceptical over QE’s healing powers. It believes it enables countries to escape much needed economic reforms. But, ironically, many experts believe Germany and its stock market could benefit handsomely from the money printing programme.
Among them is Robert Smith, manager of investment fund Baring German Growth. He makes it a good place to be.’ Smith also believes that a lower euro will benefit Germany’s exporters, boosting their profits.
He says: ‘As the euro moves to parity with the US dollar, it will provide a strong tailwind to corporate earnings in Germany.
‘And given that the German stock market has yet to factor in properly these superior earnings, there is scope for further growth in equity prices.’
Baring is alone in the UK in running a pure German investment fund – most other asset managers prefer to run broader European portfolios.
Baring German Growth has 75 holdings, ranging from iconic brands such as Daimler, Siemens and Bayer through to unappreciated fast-growth firms.