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Market Insight 2011 Q4 Belgium

It will be no surprise to hear that Belgian investors have lost confidence regarding the economic outlook within the eurozone, in line with the rest of European investors. Many investors told us they are looking at other asset classes’ performance, mostly outside the eurozone.

Unsurprisingly, emerging markets is an option that we continue to hear about.

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In June, bond and equity funds were on par in terms of invested assets with €28.64bn and €29.98bn respectively. Since then, we have seen investor confidence fading away when looking at the Belgian fund flow data released by the ECB.

Equity funds reached a record low this year in August, while mixed and bond funds are continuing to drop. This is in turn causing a rise in concern about another recession hitting Europe.

 

News Roundup
• Belgium’s credit rating has been cut by Standard & Poor’s, following concerns that funding pressures could mean the country will have to take on more debt from its banks.
• The global economic outlook has deteriorated significantly, the Organisation for Economic Cooperation and Development said, as it urged the European Central Bank to act more decisively to prevent the eurozone sovereign debt crisis from deepening further.
• European Commissioner Olli Rehn has welcomed the deal that Belgian politicians have struck on the 2012 budget.

Hot Topics
What everyone is talking about
• Emerging Markets – new safe haven?
• Fixed income – where to find returns
• Equities – where the outflows are going
• SRI – a new field to play in?
• Regulation – hedge fund passport in place?

Fixed Income

Fixed income still forms the biggest part of our interviewees’ portfolios in Belgium. According to the investors we spoke with, the various EU summits that ended up without any concrete solution are not helping the markets to stabilise.

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Although bonds are still a preferred asset class in Belgium, developed market government bonds are being underweighted. This is supported by our research and data collected in France where 80% of investors are negative, the rest being neutral on that particular type of asset.

Investors are looking beyond the closest markets in the hunt for better risk/return ratios with Asia Pacific, Northern Europe and Russia being mentioned. EM corporate bonds are also increasing in popularity, both investment grade and also the spicier, high yielding alternatives.

 

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European and US Equities

In light of economic problems across Europe, European equities are no longer regarded as a good investment. They are mostly underweighted in the portfolios of our interviewees.

The general expectation is that the US economy will recover more quickly than the eurozone. The main reason expressed by investors was that the US could be more reactive when facing the crisis, thanks to a single, unified government and fiscal system.

In Europe the conflicts of interest emerging from the heads of European countries are slowing down decision making and making the essential standardisation of the fiscal system tortuous.

Investors have made particular suggestions on Northern European equities. They see some potential in emerging market equities in the long run. Asia Pacific, Eastern Europe and Russia are seen as a good investment with potential for alpha. The view on Japan is neutral though the region is valued as cheap and therefore regarded as a possible investment opportunity.

Alternative investments have enjoyed more interest and are considered as an additional source of returns. High yielding bond products as well as SRI benefit from the global trend of investors increasing their allocation toward these asset classes.

Investment grade is also a desired product as investors are looking for safer investments with which to navigate the crisis.

Investors are dedicating more importance to cash as part of their portfolios. According to interviewees, liquidity is a desirable characteristic when markets are in turmoil as it brings flexibility within their portfolios in the short term.

Investors are overweight in gold. Interviewees have exposure in physical gold as well as equity gold funds; however this asset is still a small part of portfolios.

The European Union (EU) has moved closer to agreeing a marketing ‘passport’ for hedge funds based outside the EU after the Belgian presidency tabled a compromise on the issue. The government has also announced measures to encourage SRI, making it easier for professionals and individuals to invest in this asset class.

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tom@ybc.tv

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