Winzer does not believe that the eurozone has the right conditions for a functioning currency area. This would require a fiscal and transfer union with federal bonds, a common economic policy and a "lender of last resort" (for banks and governments). There is a "bitter need" for a coordinated economic policy to counter the pro-cyclical fiscal policy and combat the imbalances within the eurozone. Monetary policies will remain very loose given the weak economic growth, the tight fiscal policy, the weak financial sector and the structural reforms. This means key interest rates of around zero, larger central-bank balance sheets, injections of liquidity for banks and governments and transparent communication. Conventional monetary policy is still working fine in the emerging markets. Consequently, we can expect to see modest cuts in interest rates in some countries given the downturn in economic activity.
Outlook for equity and bond funds in 2012: private vs. public
The debt problem in the developed market economies will keep the markets on tenterhooks in 2012 as well. This will fuel strong demand for government bonds with top credit ratings (such as German Bunds and US Treasuries), even though yields are lingering at all-time lows and the instruments are barely generating any return: "The pressure is mounting on investors to reach their investment objectives", stressed Harald Egger, Head of the Investment Division at ERSTE-SPARINVEST. He assumes that risk appetite will grow, a trend that will quicken and be all the more sustainable the "milder" the anticipated recession in Europe turns out to be. Companies seem to be largely indifferent to the high sovereign debt levels, even despite the signs on the horizon of weakening economic activity in Europe. Egger: "Companies are in very rude health at present and generating solid earnings".
This is why ERSTE-SPARINVEST's portfolios are increasingly concentrating on funds that focus on corporate bonds, which includes interesting candidates from both the investment-grade segment (up to a BBB rating) and the high-yield sector. Egger also reckons there are good opportunities for government bonds in emerging markets, which despite the problems in Europe and in the USA are currently experiencing sustained growth and are benefiting from steady improvements in their ratings. What is more, the currencies of these countries are likely to appreciate against the euro and the US dollar on account of the liquidity created by central banks in the eurozone and in the USA.