2012 will be a difficult year for Portugal and the Portuguese asset management industry which will face rising competition fort scarce resources and an uncertain global environment.
The outflow from funds to bank deposits has eased slightly since the Bank of Portugal imposed an interest rate cap in November. Banks now have to allocate extra provisions for deposits that are 300 basis points above the Euribor index. This makes it more expensive for banks and it has had some impact, Gonçalves says.
Until then, some institutions were offering 6% to 7% on deposits. One bank would offer 5%, another 5.5% and another 6%; there was an escalation and no-one knew where it would have ended if it was not for the cap, Gonçalves says. Rates have come down to around 4.5% which is still high.
Dwyer says ECB measures providing three-year unlimited liquidity provision, greater flexibility of collateral rules, lower reserves ratio and lower interest rates, will help the liquidity situation of eurozone and Portuguese banks. Portuguese institutions however, will also face the challenge of deleveraging relatively faster than others to meet targets agreed under the EU/IMF rescue programme.
Prospects will depend to a large extent on factors outside Portugal’s control and these will affect investor sentiment.
“If volatility and uncertainty subsist in the financial markets and the euro sovereign debt crisis is not properly addressed and resolved, we will probably continue to see an outflow from investment funds and the asset management industry,” Veiga Sarmento says.
Progress towards a lasting solution to the eurozone crisis will open opportunities for equity funds as equity is now very cheap across Europe, says Gonçalves. The difficulty is to sell the idea to clients after the past year’s volatility. “Right now we see the market with a big potential but it is difficult to sell the idea to a public traumatised by bad experiences in 2011.”
Dwyer says there is an investment case for equity funds focussed on the core developed markets of the US, Japan and to a lesser extent Europe where stock price valuations are at multi-year lows.
“Although most fundamental managers have struggled this year, many note that portfolios of generally high quality stocks are poised to offer significant total returns once the current macro concerns subside,” he says.