Allianz Global Investors, a fund management unit of Allianz SE (ALV), expects volatility in equity markets to persist next year as investors focus on a probable bailout of Spain and arguments over European banking union.
“Under the current macroeconomic environment, I think it is very risky to speculate on a surge in equity prices,” global chief investment officer Andreas Utermann said at a press conference in Frankfurt today.
Spain needs to refinance 207 billion euros ($264 billion) of debt next year and the International Monetary Fund is pressuring it to seek a bailout. European policy makers are attempting to hammer out a banking union, with countries including Germany and the Netherlands opposing plans for the European Central Bank to regulate all of Europe’s lenders.
“If Spain will not ask for a bailout at the latest early next year, spreads will rise again and force the country to do so,” Utermann said. Europe’s leaders have won time from the ECB’s bond-buying program and it’s very important that they use it and find a compromise on the banking union and more fiscal consolidation, he said.
Allianz Global Investors is part of the Munich-based insurer’s Allianz Asset Management, led by management board member Jay Ralph. The larger entity also includes Pacific Investment Management Co., which runs the world’s largest bond mutual fund.
Investors should focus on companies that have diversified their operations internationally and that pay high dividends, Utermann said. He expected the outperformance of the German stock market to stall, mirroring the country’s economic performance.
“There is not a market I would recommend, so stock picking is essential,” he said.
The U.S. might “surprise on the upside” as the economy is more dynamic than Europe and President Barack Obama and the Republicans may reach a compromise to avoid tax increases and spending cuts, he said.
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