Growing elderly populations, together with a belief that the state is less likely to provide for old...
Growing elderly populations, together with a belief that the state is less likely to provide for old age, unemployment and sickness, is fuelling the growth of asset gatherers in continental Europe.
Alia Baig, head of continental European Equities at Axa Investment Managers, says disinflation has also contributed to the growth of interest in investment. Traditionally, continental Europeans tended to place their money in current accounts and bonds but as inflation fell, so did interest rates, making equities look increasingly attractive, she says.
Baig adds: "I see the market, in terms of mutual funds and, to a lesser extent, pension funds, being buoyant in France, Italy and Germany; there is a lot of growth in investing in the form of savings."
However, Steven Schroder Smith, pan-European investment analyst at Gartmore, says: "Everyone is bearish at the moment that net inflows into mutual funds are drying up. People are saying that Italy has stopped growing in this area, though I disagree.
"We have to wait for the Fed to cut rates further before Italians feel comfortable putting their money into mutual funds."
Raj Shant, director, European equities at Credit Suisse Asset Management, says Italy has seen phenomenal growth in mutual funds and he believes this will be matched by growth in pension funds in the near future. Meanwhile, Germany and France have seen growth in mutual funds and pensions but are awaiting more favourable tax legislation to trigger more growth, he adds.
Schroder Smith notes the proportion of mutual funds to GDP in Italy is greater than Germany, at 41% compared with only 10%. "In Germany, you have lots of people owning their own businesses, so they are already geared into the economy," he says. "Pensions penetration is quite low but over time pensions and mutual fund penetration must mushroom."
Asset gatherers tend to come in two varieties: in the more traditional guise of banks and insurance companies; and the newer type, exclusively focused on investment.
Shant says: "As a general rule, European banks and insurance companies have been quick to move to asset gathering. Companies have seen the experience of the UK and US, where the specialist asset gatherers took most of the attractive business.
"The specialist companies have traded on enormous multiples in the past year, a result of the growth they were seeing. Valuations ran ahead of themselves, where investors discounted rates of growth for the next few years."
Baig notes that asset gatherers experienced sharp corrections in the last quarter of 2000 and that valuations now seem more attractive. "I think Germany will be interesting this year," she says. "Not only is there currently low penetration but they are increasingly providing investors with incentives.
"They are going to have significant tax cuts this year and are talking of passing legislation for pension reform.
"I especially like German financials, though I am not that convinced about pure asset gatherers, which are not that high quality, though they should do well."
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