As trade discussions remain tense, some investors have started rethinking their allocation to emerging markets debt. 

Head of portfolio management at Julius Baer Europe, Lutz Welge, for example, has cut back his allocation to the asset class as he doesn’t see a compelling risk/return in the space.

The asset allocator has also reduced his allocation to high yield.

‘We don’t see enough liquidity in times of stress in these kind of markets, so we cut back on more speculative segments in the fixed income space and went a bit more conservative.’

Head of active allocation retail at Allianz GI, Manuela Thies, also trimmed her exposure to emerging markets debt as a result of the strengthening dollar, rising interest rates and idiosyncratic risks.

This mood is in line with the latest statistics published by the Financial Times, which states that Pictet’s $5.6 billion Global Emerging Debt fund had $809 million of outflows, while Pimco’s $2.5 billion GIS Emerging Local Bond fund suffered $596 million of outflows in May.

2.  Automobile sector under pressure  

Another sector in the German economy feeling the pressure is the automotive industry.

Henning Gebhard, head of asset management and wealth management at Berenberg, said his team has been underweight the sector for some time. He added that the automotive industry has enjoyed a great cycle until recently, but 'emobility' is posing a challenge to the sector.

‘Even so we must say that earnings of BMW and Daimler held up really well until they had the profit warning, and they are not expensive,' he said. 'It is now one of the lowest value sectors in the pan-European universe.’

Christoph Ohme, Citywire AA-rated German equity manager from DWS, said discussions around trade wars and costs will hang over the sector for some time.

He added that automobile companies have to spend a lot of money to gear up for big changes like emobility, which spells limited returns for shareholders. The fund manager said the steel tariffs might make the costs pressure even greater.

3.   Frankfurt – the new London?

The majority of investors in Frankfurt agreed that the city is enjoying positive momentum, not least because of the uncertainty surrounding Brexit proceedings.

‘Due to Brexit some international companies like UBS and JPMorgan are building branches here, and they will have demand for native speakers as well. There will be quite a lot of local hiring and that is not bad for the market.’

On 4 July The Financial Times reported that several dozen staff at JPMorgan have been asked to consider relocation from the UK by the end of this or early next year.  The initial guidance of the bank implies that its UK stuff could be reduced by 4,000 after the exit from the EU.

However, investors don’t see the number of hires and newcomers hitting 10,000 mark, not least due to the housing shortage and the absence of necessary infrastructure to accommodate families of new hires.