Tag Archives: allianz global investors

ECB’s QE plan is widening gap between rich and poor, but it has no choice

The European Central Bank is set to announce whether it wants to extend its quantitative easing programme in the eurozone this Thursday. Andreas Utermann, global chief investment officer at Allianz Global Investors, is confident that the ECB will do what is expected and the market will get the liquidity it wants.

“The European Central Bank’s plan, although they might not admit it, is to keep the euro cheap,” he said at the asset manager’s Market Outlook 2016 roundtable. “The tap of liquidity is turned on and it is not getting turned off.”

The ECB launched its bond-buying programme in January, pledging to splash out about €60bn a month from March 2015 until September 2016, hoping to rocket-launch inflation from its near-zero doldrums to a sparkling two per cent.

But growth has not picked up as quickly as some hoped and there have been hints from the central bank that they may extend the programme. ECB president Mario Draghi recently said that the central bank will “do what we must” to return inflation to its two per cent target “as quickly as possible” – a strong hint of further action.

But all this easy money comes at a price.

“Noone is writing about the social impact of quantitative easing,” said Andreas. “It widens the gap between rich and poor. But noone is addressing it due to lack of other options.”

In the US, former Republican presidential candidate Mitt Romney has blamed QE for rising inequality as it “held down interest rates” and “caused the stock market to rise”.

Here in the UK, pensions minister Ros Altmann has complained that the bond-buying programme has resulted in a huge tax increase on pensions – with pensioners relying on interest income – and a tax cut for banks, borrowers and the wealthy.

And Bank of England research back in 2012 said the policy had boosted asset prices and made the rich richer.

But as Andreas says, what is the other option? Answers on a postcard please, or even better, email info@hotcommodity.co.uk with your views.

Allianz GI’s UK equities fund manager on the merits of oil and why defensive stocks are losing their edge

In the first of Hot Commodity’s investor series, I chat to Simon Gergel, chief investment officer, UK equities at Allianz Global Investors, about which stocks are set to become a hot commodity next year and which ones will be yesterday’s news…

Simon says: oil majors

The fund manager is pretty bullish on large oil companies, which suggests that the sector is suitably distressed enough to become attractive. Simon thinks the oil giants are in a more promising shape than oil itself, as the depressed pricing environment has made the likes of BP and Shell cut costs and improve their business models. Although he is expecting the price of oil to rise in the medium term.

So will Allianz GI be ramping up its allocation to oil-focused equities? Simon did not rule this out. “We’ve already got quite a big position on oil companies and we have increased our position before,” he says.

Simon says: copper

Surprisingly commodities are not the pariah one might expect in the current pricing climate, dragged down by the growth slowdown in China. Or should I say SOME commodities. “It’s dangerous to generalise”, says Simon.

“A lot of production has been taken out of copper this year. It is much tougher to increase output for copper than for some other metals such as iron ore, as it uses deeper and more difficult technologies”, he says, the implication being that tightening supply will push up the price. “It is also less dependent on Chinese infrastructure. We’ve bought [FTSE 100-quoted Chilean copper miner] Antofagasta in the last six to nine months.”

Simon says: leisure

Other sectors on the Christmas wish-list are leisure stocks, such as gambling firms William Hill and Ladbrokes, cruise company Carnival, pub chain Greene King and satellite firm Inmarsat – “I see growth in marine and aviation communications”.

I asked Simon what he thought about fund guru Neil Woodford’s bullish stance on tobacco and healthcare.

“The problem with tobacco is that the valuations are so high now,” he says. “The product is on the decline in most parts of the world.”

Simon likes GlaxoSmithKline – “the Novartis deal transformed the business” – but that’s the only pharmaceuticals stock in his portfolio.

So what is leaving him cold?

“Defensive stocks/bond proxies have done well at a time of low rates,” he said. (Bond proxies are companies with healthy dividend yields and low volatility, that are seen as a safe-ish bet in poor market conditions).

But with rate rises imminent in the US and the UK, which will increase bond yields, Simon expects defensive stocks, including the likes of Unilever and Reckitt Benckiser, to become less attractive.

Simon expects an EU referendum in late spring/early summer. “Uncertainty around a Brexit could lead people to focus on global companies, which are less dependent on the UK economy,” he says.