How the corona crisis affects open-ended real estate funds

Erfurt Claus 2020 has big plans for 2020. The managing director of BNP Paribas REIM in Germany – the real estate investment arm of the French major bank – plans to launch an open real estate fund.

With this, the investment manager, whose real estate expertise in Germany has so far been reserved primarily for wealthy and institutional investors, also wants to enter the market for retail funds.

Or rather: wanted. According to the original plan, the fund should start selling at the beginning of April. But then Corona came and everything for Thomas’ plans was different than expected. “We have now postponed the start of our new mutual fund to June 2020,” he says.

The virus pandemic not only keeps the economy under control, but also the capital markets. If retailers and hoteliers today apply for deferral of rental payments to bridge their slump in sales as a result of the prescribed standstill, sooner or later investors in open-ended real estate funds will also be affected. Through the funds, they are indirectly the landlords of the industries concerned.

Corona crisis different from financial crisis

The situation brings back memories of the financial crisis, when real estate values ​​had to be corrected and funds closed because too many investors wanted their money at once. Experts also expect returns from the funds to decline as a result of Corona. Nevertheless, the situation today is different from that in the financial crisis.

At that time, the epicenter of the financial crisis was in the real estate sector. High-risk real estate loans failed, the nervousness spread rapidly to other real estate classes. In droves, investors withdrew funds from the open real estate funds.

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Because they didn’t have enough liquidity buffers to earn all the claims, they were frozen. The funds bought time to monetize their properties. In general panic and under great time pressure, they sometimes made considerable losses, which ultimately also had to cope with the investors.

Today, there is no high-risk real estate loan at the beginning of the economic crisis, but a virus. “What we know from previous financial crises is that the spillover effects become more apparent the closer they are to the cause,” explains Steffen Sebastian, professor of real estate finance at the Ireb Real Estate Academy in Regensburg. However, the real estate is not in a crisis of confidence today.

In the corona crisis, retailers and hoteliers ask for rent deferrals because they are not allowed to open their shops and break down sales – and not because they have encountered problems due to a previously miserable business situation. For many companies, it is a stress test.

“Tenants from the hotel and retail sector have informed us that they want to negotiate their rental payments with us,” says Esteban de Lope, Managing Director of Deka Immobilien. The fund house is not alone in this. The other large providers from Commerz Real to DWS to Union Investment Real Estate also report on corresponding inquiries.

In the interests of investors

This puts the funds in a delicate position: On the one hand, they have an interest in keeping long-term leases – and thus secure income – in the funds and helping their tenants with a temporary solution.

On the other hand, they have to work for their customers, the investors. “We are committed to our investors and therefore do not grant flat-rate deferrals or rent reductions,” said a spokesman for Union Investment Real Estate. In plain language: deferrals remain individual decisions.

If rents are deferred, only the time of payment is postponed. They still have to be paid. But: “There could also be rent losses or rent adjustments here,” says Sonja Knorr, real estate fund analyst at the rating agency Scope.

The funds are also aware of the consequences: “Overall, it can be expected that the rental income of the funds will decline this year,” says de Lope from Deka. No fund manager can and does not yet estimate the extent of the decline.

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Investors are not entitled to immediate notification of deferral or loss of rent: “There are no ad hoc notification requirements for open-ended real estate funds. If the fund defers rents or even loses rents, it does not have to notify it immediately. This is enough in the quarterly notifications to investors, ”explains Carola Rathke, partner at the business law firm Eversheds Sutherland in Germany.

Some providers already confirm revaluations. A spokesman for Commerz Real, for example, reports that in the first three months of this year objects dominated by retail were devalued by the experts.

But this also includes: The problems in the trade already existed before Corona, they have now been exacerbated by the crisis. At the same time, Commerz Real emphasizes: “At the moment, however, we are not seeing any significant effects on the management of our properties.” The provider calculates the fund’s return at 2.0 to 2.5 percent, roughly on the previous year’s level.

Loss of yield

Analysts remain more skeptical about the outlook. Rüdiger Sälzle, head of the fund analysis firm Fonds Consult, expects yields to fall by 50 to 100 basis points due to the corona crisis.

“On average, I expect a return of 1.5 to two percent,” says Sälzle. That was calculated conservatively, but manageable in view of the general conditions. The drop in rental income is likely to be felt initially, alongside property valuation and interest on liquidity, one of the return components of the funds. Where new contracts are due and the new rents are significantly lower than the previous ones, this will also lead to devaluations for real estate, says Sälzle.

The bottom line, from today’s perspective, returns remain in the positive range. This speaks in a market environment with highly volatile and sometimes sharply declining stock and bond markets for real estate. Morningstar analysts are already showing that European investors are drawing more capital from equity, bond and mixed funds than ever before.

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There are still no official data for the real estate funds. Those of the BVI fund association for the first quarter will not be published until May. Scope analyst Knorr recognizes investment reluctance. “But we cannot see any waves of sales.”

The funds themselves report positive inflows in the first quarter. Commerz Real’s house investment has recorded inflows of 470 million euros since the beginning of the year. “The announcements of returns are still in the single-digit million range,” said a spokesman.

Union Investment Real Estate, whose funds UniImmo Germany and UniImmo Europe are among the largest open mutual funds, also reports on return claims in the single-digit million range. A spokesman for DWS says there are still positive net inflows – ie investments less return requests – and “generally no significantly increased return requests”.

Longer holding periods

In order to prevent a sudden, massive withdrawal of capital, which caused the funds to plummet during the financial crisis, stricter regulations apply anyway. Since 2013 it has been said that anyone who buys an open-ended real estate fund must hold it for at least two years.

Anyone wishing to redeem their shares can only do so with a notice period of one year. The illusion of a completely liquid trade in an illiquid product such as real estate was taken away from investors. Because when the going gets tough, the financial crisis showed, the funds have to sell their assets – and that is far more difficult than trading a stock package on the stock exchanges.

However, there is one exception for investors who bought their shares before 2013: they can withdraw up to EUR 30,000 from the fund every six months. “Today, however, the funds have sufficient liquidity to service these claims,” ​​says analyst Knorr, drawing attention to another difference to the financial crisis. The average liquidity ratio is 20 percent of the fund’s assets. 50 percent must be invested in real estate.

Debt financing is also more conservative today than in the financial crisis, says Knorr. Before the financial crisis, the average was 28.6 percent, today it is 15.1 percent. Some funds even had quotas of more than 40 percent.

With this credit lever, earnings could be increased in good times. This also applies reciprocally to the losses. “Today, a debt ratio of up to 30 percent is required by law. This is very conservative for real estate transactions, ”explains Knorr.

If funds fall below threshold values, for example that less than 50 percent of the fund’s assets are held in real estate, the capital management company must inform Bafin, who acts as the supervisory authority, explains Martina Sradj, partner of Eversheds Sutherland in Germany.

Private investors among themselves

Another stability factor: up to the financial crisis, semi-professional and institutional investors were invested in open real estate funds to a much greater extent than today. “Funds of funds or asset managers were very quick to return their shares at the time,” says Knorr. Today, these actors are not prohibited from investing in open-ended real estate funds. However, a wide range of alternative products has only developed for institutional investors in recent years, which is usually also cheaper.

The proportion of institutional investors in open-ended funds cannot be clearly quantified, but is significantly below the level of the financial crisis. Real estate funds of funds have disappeared from the market for private investors, explains Knorr.

The lawyer Rathke from Eversheds Sutherland adds: “Today, institutional and semi-professional investors are not directly prohibited from investing in open-ended real estate funds. However, there are strict requirements in terms of tax law, so that an investment in the open products is generally excluded. “

If people in countries like Germany, Austria or the USA are talking about relaxing the corona restrictions when shops are allowed to open again, then this should also make things easier for investors in open real estate funds. However, these measures are not a guarantee of a return to normalcy. This also applies to the real estate world. Sälzle, for example, points out the so-called second-round effects: “How the corona crisis will affect the real estate segment in the medium to long term is still completely open,” says the analyst. So the world is today in the “largest joint field trial in the home office”.

In the future, people will return to their normal jobs. But the office world doesn’t have to be the same. “The structure of the office space will change in the medium term. In the future, less space could be rented and employees could be given more flexibility in dealing with their home office, ”says Sälzle. What that means for the funds as a landlord is not yet clear.

Claus Thomas of BNP Paribas REIM, whose fund is due to launch this year, is not worried by this. He already has several objects in sight for sale, including a hotel in Munich. Although hotels in Corona are under particular pressure, he still assumes that use will develop above average in the long term, says Thomas. His fund should also focus on megatrends such as digitization and also invest in healthcare properties – two areas that could well benefit from the corona crisis.

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Fund investors in Europe are pulling record amounts of money

Pimco headquarters in California

As a bond house, Pimco has benefited greatly from the boom in this asset class in recent years.

(Photo: Pimco)

Frankfurt A cartel of silence dominates the European fund market. None of the big asset managers want to talk about the massive escape of investors from the products. In March, customers in Europe withdrew a total of 232 billion euros from funds because of the corona panic in the markets – more than ever before.

The number is based on the latest estimates from the rating agency Morningstar for the Handelsblatt. It is significantly higher than the data published a little more than a week ago. “The number should also continue to rise because we still lack information from some funds,” says Morningstar analyst Ali Masarwah.

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Celebrity funds shine in the crisis

Kai Diekmann and Leonhard Fischer

The two celebrities rely on small returns and promise great security.

(Photo: Getty Images)

Frankfurt It is a crisis – and investors are suffering too. All? No, there are few winners in the chaotic trading weeks. These include the celebrities Leonhard (“Lenny”) Fischer and Kai Diekmann. The ex-banker and the media professional suddenly make positive headlines with their financial product “The Future Fund”.

With the mixed fund, they mastered the crisis weeks and even posted a slight gain of one percent in the first quarter (see chart). Given the historic stock market slump in March, that sounds like science fiction. Virtually all competitors lick their wounds after high losses. “We are not crash prophets, but our approach has proven itself,” comments Fischer, who once made a name for himself as the youngest board member of Dresdner Bank.

A little over two years ago, the financial expert and the former editor-in-chief of the tabloid “Bild” started. They wanted to shake up the investment scene and initiated the fund as a savings alternative in the world without interest. The specially founded Deutsche Fondsgesellschaft serves as a sales unit.

A total of five people pull the strings, in addition to the two protagonists, including Volker Schilling. The board of the asset manager Greiff Capital Management controls the fund in day-to-day business. Communication expert Diekmann supports the project with the digital magazine “Zaster”, which is part of the German fund company, and is intended to prepare money issues in a way that is easy to understand for a broad audience.

Over the years, the critics have come forward. The market was flooded with mixed funds, so there was no need for any more, it was often said. In fact, the analysis company Scope Analysis in Germany counts around 2000 such products with a total capital of over 500 billion euros.

Comparatively little capital

Quite different houses set the tone here. The capital is concentrated on the flagships of some large houses. And they often have volumes in the double-digit billion euro range. These include, for example, a “Multiple Opportunities” by Flossbach von Storch or an “Allianz Income and Growth” by Allianz Global Investors.

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In comparison, the future fund is an important one. Even today, the fund only has a measly ten million euros in capital. Last spring’s top was almost 16 million euros.

An important point is of course the investment result. That is where the critics start. The yields were moderate. In the stock market boom year 2019, the future fund almost turned out to be a loser with its return of just under four percent. It was the low equity quota that made the result look weak.

So skeptics remain true to their line. “The fund made losses last year and only returned to its level from the start this year,” complains Ali Masarwah, analyst at the fund rating agency Morningstar. He says: “Customers were attracted by the keyword savings book replacement, and the fund did not deliver that solely in terms of performance.”

André Härtel from Scope Analysis is equally critical. “They wanted to revolutionize the investment industry, but this revolution has so far failed to materialize,” says the fund expert. You have to know: At the start, the strategists spent 20 billion euros as a long-term sales target. The gap to the status quo is therefore enormous.

Advertising misses its target

Some skeptics also speak of a misjudgment by the two initiators. Then the two strategists misjudged their own celebrity factor. Although Fischer is known in the financial scene and Diekmann in the media industry, Otto ordinary investors could not associate anything with the names. A surge in sales above the level of awareness is therefore a self-deception.

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Various promotions for the product also had no effect. This included, for example, advertisements in the media. The digitally offered fund does not have a sales partner such as a bank. “We can be cheaper for that; every fee saved means more return for the investor,” argues Fischer. According to Morningstar, the fund is actually cheaper than many competing offers with an annual fee of just under one percent.

If, after the previous failure, a turn started, the key could be the March events. In any case, the tax men at the Future Fund look like supermen with their short-term income after a few weeks in the new corona world.

Greiff Capital man Schilling dismisses the key word: “We are not heroes, we are just stubborn how we pursue our approach.” Fischer and manager Schilling look closely at the risk. You watch the price trends and price fluctuations.

In the past year, stocks rose extremely, while price fluctuations were small. They interpreted this as a warning signal. “That’s why we reduced the risk while other investors increased the share quotas,” says Fischer. The fund had pushed the equity component down to twelve percent, and in the past few weeks had pushed it back up to 20 percent as a result of the price setbacks, as Schilling explains.

The griffin expert increased his stock position Equinor auf, a Norwegian oil and gas company, which he finds “incredibly lucrative”. He had last joined at Microsoft and BASF: “After the price losses, they were simply attractive.”

High cash holdings and half in bonds

It is very important to him that the cash in hand is now a fifth of the fund’s capital. Just under a tenth reach the gold position. Around half of the money is invested in bonds, much of it in corporate titles and US government bonds. After the catastrophic losses in the bond markets in March, yields had increased enormously. He took advantage of these opportunities with acquisitions, for example, of the Chinese Shuguang Group.

A new purchase are papers from the US group Colgate-Palm olive. In general, he prefers short maturities and stocks with good ratings for corporate paper. The energy and utilities industry is particularly interesting.

However, the manager considers a discussion of individual stocks to be of secondary importance in relation to the critical situation of the overall market. This is easily lost in discussions in a broader public. Too often you focus on the action on the stock markets with their big swings.

But the bond markets are more important. if only because they are much bigger. “Illiquidity is the biggest risk here,” says Schilling. “A few weeks ago there were no buyers for some stocks with a” BBB “rating, there was a real buyers’ strike, which is fatal,” recalls the fund manager. The situation was systemic for Fischer. He is certain: “The bond markets would have collapsed if we had not seen the most massive fiscal and monetary measures ever.”

Every crisis bigger than the previous one

From a high bird’s eye view, the ex-banker sees the central banks in a special position. “They are the only risk managers worldwide, the last saviors, so to speak.” The market economy had long since had its day in the financial industry.

The 57-year-old looks over the past decades and recognizes an accelerated accumulation of danger over time: “Every crisis goes faster, and the volumes used to combat the central banks are getting bigger.” Now the US Federal Reserve even buy corporate bonds, which is actually prohibited be. “Rules have to be broken, otherwise the system will collapse,” he concludes.

Former picture boss

From January 2001 to December 2015, Kai Diekmann was editor-in-chief of the Bild newspaper.


(Photo: dpa)

With a view to the corona situation, Fischer expects the economy to pick up in May. The economy could only go through a shutdown for a month or two. However, he does not anticipate a depression similar to the events of the 1929 like extreme pessimists.

The comparison is wrong because the economic basis has not been destroyed today. “I can imagine a stagflation like the one in the 1973 oil crisis,” says Fischer. Weak growth is conceivable with inflation of three to four percent and interest rates of a maximum of two percent. “In other words: a gradual expropriation, we call it financial repression,” explains Fischer. That is the price of a “completely manipulated monetary and economic order”.

The return targets are small

In this financial world, strategists believe they can successfully immunize themselves – with their own investment policy. They don’t have big earnings ambitions. Your goal is a long-term annual return of two to four percent. This should serve as a substitute for abolished savings interest.

So far, however, the celebrities have not been able to convince their target customers – as can be seen from the low fund capital. The support from Diekmann’s “Zaster” is probably of little use. The 55-year-old media man digitally delivers stories of the brand “How to weather your first stock market crash” or “10 things for which I no longer spend money because of the corona virus”.

It remains to be seen whether Fischer and Diekmann can use the fund to build on their successful youth connections. They played together as children and attended the same school in Bielefeld. There they also worked together in the school newspaper.

Your age project in the fund management for both new Metier requires patience in any case. At least that’s how Fischer sees it, who wants to convince with figures in the long term. He emphasizes this in typical financial German: “We systematically build up performance.”

More: The crisis is causing panic among investors – they are pulling money out of funds for record amounts

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Customers remain loyal – almost no cash outflows in March

Frankfurt While investors in Europe fled from investment funds with the outbreak of the corona crisis, Dekabank’s business has remained almost stable. Georg Stocker, the new chief executive of the savings bank fund service provider, said on Tuesday: “Looking at sales shows that customers have reacted very prudently so far.” In March there were almost no net outflows overall, Stocker continued. This applies to both private and institutional investors.

This means that Deka is in a much better position than other asset managers. According to an analysis by the rating agency Morningstar, funds in Europe have recently suffered violent outflows. According to the estimate, based on around 90 percent of all funds offered in Europe, investors sold shares for a good EUR 200 billion net in the crisis month of March.

The final numbers will be even higher. The Morningstar estimate does not include institutional business with large investors.

By contrast, Deka is supported by the business with securities savings plans. In the first twelve weeks of this year, it sold more than 250,000 savings plans. “The now well over five million savings plans are a clearly stabilizing factor for our portfolio,” said Stocker.

The former head of Sparkassenvertrieb, who has been a member of the Deka Executive Board for a long time, moved to the top of the company at the beginning of the year, succeeding Michael Rüdiger. Stocker emphasized that Deka had come through the crisis properly so far. “We are well prepared for any further aggravation of the situation.”

Like other financial institutions, Deka did not want to make a forecast for 2020. The economic consequences of the corona virus are not yet foreseeable, said the Deka boss. Deka is one of the largest asset managers in Germany. At the end of 2019, it was managing a good 310 billion euros. The recent stock market turmoil has reduced the value by around 25 billion euros.

Deka boss defends certificate strategy

Last year, the fund company, which belongs to around 380 German savings banks, earned slightly less than in 2018. The so-called economic result fell from 452 million euros to 434 million euros. The result was burdened by provisions for pensions. The economic result differs in some items from classic earnings indicators, for example in certain interest rate transactions.

In 2019, Deka raised a net 18 billion euros, significantly more than in the previous year. A good 11 billion euros of this came from private customers. They invested five billion euros in certificates and six billion euros in funds. Deka has only been issuing certificates for a few years, but is now the market leader in Germany according to the derivatives association DDV.

Consumer advocates repeatedly warn of risks of loss through certificates and sometimes consider the products to be too complicated. Stocker defended Deka’s approach: According to him, a small part of the certificates due in 2020 are currently in the red. It is about certificates with a volume of 350 million euros, which corresponds to 2.5 percent of the total volume of certificates of 14 billion euros. “The extent to which the nominal amount will still be repaid depends on how the market develops until the due date.”

A large part of the Deka certificates are interest-oriented and not related to the stock market, Stocker explained. Many share certificates, in turn, would have buffers and would run even longer. The certificates were deliberately chosen “so that extreme situations like now have a negative development”.

Dekabank expects the gross domestic product to decline by almost five percent in the current year. A plus is expected for the coming year. Deka chief economist Ulrich Kater said that if this happened, one would be confident that the Dax achieve 11,500 points again next year. The leading German index fell by a good 30 percent within six weeks. It fell below 8500 points at times, but has since recovered somewhat.

The corona crisis also has an impact on the desired consolidation of the top public law institutes: It is on hold for an indefinite period, as savings bank president Helmut Schleweis said just under three weeks ago. He has in mind that ultimately there is only one central institute for the savings banks. The starting point should be a possible merger between Deka and Landesbank Hessen-Thüringen, which is majority owned by savings banks.

The talks between the two Frankfurt institutes only started shortly after the beginning of the year. However, resistance from various sides within the Sparkassen-Finanzgruppe had become clear. There are currently four large Landesbanken: in addition to Helaba, LBBW in Stuttgart, BayernLB in Munich and NordLB in Hanover.

More: Private investors are particularly affected by breakdown series on trading platforms.

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Investors just want to get out

Frankfurt The turning point, a slump, a collapse: Many words describe what is currently happening on the European fund markets. The corona shock brings historical figures to the investment industry – in a negative sense. “We are experiencing a landslide, investors have never sold as many funds as in the past few weeks,” says Ali Masarwah.

The analyst of the rating agency Morningstar calculated figures that are exclusively available to the Handelsblatt. According to this estimate, based on around 90 percent of all funds offered in Europe, investors sold shares for a net EUR 202 billion in the crisis month of March. Masarwah describes the state of emergency: “The withdrawal is even greater than in the financial crisis, because there is pure fear.”

The final numbers will be even higher. Institutional business with large investors is not included. However, the rough approximation to what is happening on the market for retail investment funds with a volume of around 9.4 trillion euros already reflects a dramatic turnaround in sentiment. In February, investors in Europe invested a net 40 billion euros.

The sudden turnaround in the following month came in all major asset classes: stocks, bonds and mixed funds. Investors returned shares in all segments. “Investors reacted panicked, there seemed to be only one safe haven left, and that was cash,” said Mauro Baratta, fund expert at the financial services provider Broadridge in London.

Gunther Westen explains the dramaturgy of the crisis weeks. The head of asset structuring at Oddo BHF Asset Management recognizes a wave pattern with a downward spiral. First shares were sold, then riskier bonds, then bonds with a good rating, and finally even the federal bonds and gold that were considered safe.

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“In the end, investors just wanted to create liquidity, so they sold everything at almost any price,” says Westen. The investors were extremely unsettled. There are reasons for this: “The financial crisis still seemed abstract and distant to many private investors, but now it’s about your own health, and we encounter the issue of corona everywhere in everyday life.”

Biggest panic about bonds

The sales figures for bond funds are particularly extreme. The February inflows of EUR 26 billion were followed by March outflows of EUR 106 billion. “The sales lists included everything that was somehow associated with higher risks,” says Sascha Specketer, Germany sales manager for the asset manager Invesco.

This is in line with Morningstar’s estimates. The largest share redemptions were in products that invest primarily in emerging market issues and in bonds from companies with a poor rating. This is exactly where investors had been looking for additional returns in recent years because classic government bonds no longer provided attractive income in the world of low interest rates.

This hunt for yield explains the record inflows in bond funds last year. “Many customers were very heavily invested,” recalls Invesco-Mann Specketer. According to experts, investors lost their sense of the real risk because the interest rate advantage over risk-free government bonds had shrunk extremely in the wake of the rush to buy.

This is now taking revenge. “Emerging market stocks lost the most in price during the crisis compared to other bond segments,” says Specketer. According to Gunter West, the prices of high-yield emerging market bonds fell on average by almost a fifth this year. This is an extreme change for bonds.

The setbacks in corporate emissions from industrialized countries were similarly clear, provided that they too had a poor rating and therefore offered more returns to offset them. Crisis losses were also noticeable for stocks with a good rating. West puts it at seven percent.

Due to the mirror-image yield increases in the crisis phase, such papers now make a more attractive impression. But Detlef Glow, fund expert at the financial information service provider Refinitiv, warns with a view to the dramatic economic situation: “If the companies run out of income, it will be difficult to service the bonds.” In his opinion, there are therefore clear risks in the issues. “Some bond funds are already experiencing significant losses, and that has made the shareholders nervous,” observes Broadridge expert Baratta.

Question marks are now also behind the classic mixed funds. In February, investors bought such products for a net EUR 7 billion, after which they rose in March by EUR 26 billion. “The Germans are the classic mixed fund investors,” says Glow.

Handelsblatt Morning Briefing - Corona Spezial

The phenomenon is well known: the risk-averse German private investor also approached the share, because mixed funds hold more or less high shares in company investments. But now such products have also suffered double-digit percentage losses. Opinions differ on how this will work in the long term.

Some observers expect a change in buying behavior in this area. The Scope experts expect investors to say goodbye to the big losers and focus on products with relatively good crisis results.

Consequences for the stock culture

The question of the future is becoming more acute with pure equity funds. This was where the shock hit most: the global stock index lost more than a third of its value in the crisis weeks. It was the fastest break in history. The figures for the fund market are accordingly. If investors in Europe had bought shares for two billion euros in February, they sold for a net 47 billion euros in March.

Here, too, equity funds focused on emerging markets were hardest hit. After the immense losses on the stock market, the West at least gives some hope: “The total sales on the markets are largely through, the huge distortions are over, we will no longer see discounts on stock indices of ten percent on a day like March.”

That is why the representatives of the investment industry are cautiously optimistic about the future. “The support measures taken by governments and central banks are having a positive effect,” believes Westen. But better news is now needed to contain the corona virus. “Then we may see better inflows in bond funds again in May,” speculates Westen. The riskier investment groups could follow later.

Specketer from Invesco thinks similarly, without getting involved in a time perspective. He is also waiting for a turnaround in the corona crisis: “Then investors will buy products for stocks and well-valued bonds again.”

From a German perspective, savings plans are a big topic. Such regular purchases of equity funds or mixed products have become very popular in recent years. Many savers want to accumulate additional assets and make provisions for retirement. “Most customers will stick it out, at least that’s what I expect,” says Specketer.

Provided for future demand

He also recognizes a trend towards more individual advice that supports the business. According to his observations, more and more investors are putting their portfolio together with selected equity and bond funds. “They do this themselves or with the support of the consultant,” says the Invesco man. This is particularly important for younger savers. Therefore, future demand is catered for.

Independent experts are more cautious about the prospects. In your opinion, the consequences of the stock market setbacks for the equity culture are foreseeable. Glow puts it this way: “The risk-averse German will say that I was right not to buy shares.”

There were major stock market setbacks in 1987, 2000 and 2008. “Now we have the next crisis with high losses – and again a generation of investors is out,” believes the refinitive man. For him it is clear: “I do not need to address the typical private investor in shares in the next few years.”

Masarwah can hardly hide his skeptical outlook either. He does recognize a decrease in cash outflows for equity funds. But that’s just a snapshot. “You can’t fool yourself if the markets continue to go down, then the drains will continue,” he says.

And if the stock market rallies, the inflows are likely to be moderate. The investor could not simply put up with the current slump. This is weighing on the budding stock culture in Germany: “A lot of porcelain has been smashed there.”

More: The stock market crash ends a golden decade for fund administrators, providers lose many billions of euros in profit.

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China’s debt problem is coming into focus

Beijing China’s local governments are currently launching numerous large and small support programs for domestic companies. Tax relief and reduced social security contributions are among the most common types of help. The Chinese economy has been suffering from the consequences of the coronavirus crisis for weeks. The International Monetary Fund (IMF) expects the world’s second largest economy to grow to 5.6 percent in 2020.

But the Chinese government wants to prevent a violent slump, especially to stop major job losses. The previous economic support is therefore only the beginning. “Most of the spending will be made in the second and third quarters,” said Wang Tao, chief economist for China at the major Swiss bank UBS.

The Coronas crisis highlights a well-known problem in China: the country’s high level of debt, which will now continue to increase. Wang expects local governments in particular to borrow. “There will be higher expenses and these expenses will be financed through debt,” she says.

The trend is already clearly visible: China’s local governments have raised a record amount of new debt in the first two months of the year. According to current data from the Chinese Ministry of Finance, they issued 1.2 trillion yuan in bonds in January and February, 56.4 percent more than in the same period last year.

China’s debt has been growing for years. Especially after the financial crisis, economic stimulus measures led to a massive increase in government spending, and as a result gross debt (i.e. government, household and corporate debt combined) rose from 140 percent in 2007 to 261 percent in the second quarter 2019. The rating agency DBRS Morningstar estimates that China’s government debt ratio alone will increase to 76.6 percent of its gross domestic product by 2024.

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But doing nothing is not an alternative. The trade dispute with the United States had a negative impact on domestic companies last year, and now the coronavirus crisis is coming. For weeks now, consumers in China have only been buying the bare essentials; until recently, factories in large parts of the country were idle and supply chains have been interrupted. The economy is slowly returning to normal. But now there is a threat of new corona cases abroad.

The indebtedness of Chinese companies is already among the highest in the world and has caused unrest among investors in the past. According to calculations by the Bank for International Settlements (BIS), corporate debt was around 152 percent of China’s economic output in 2018. This rate was around 57 percent in Germany and 74 percent in the United States.

For some companies, the corona shock is the factor that causes them to get into trouble. For example, the state-owned conglomerate HNA had to apply for financial aid from the Chinese province of Hainan in early February due to liquidity shortages. However, the company was in a bad position even before the corona virus crisis due to excessive shopping trips.

In particular, small and medium-sized companies, which employ a large number of people in China, could suffer from the sustained loss of sales. 20 percent of the companies surveyed by the Washington Center for Global Development think tank at the end of February said that their liquidity reserves did not last longer than three months.

“The special loan renewal program and the extension of repayments for coronavirus companies can help solve the problem of tight cash flow,” said Iris Pang, China economist at Ing Bank. In the past few weeks, several reference interest rates have been lowered in China, primarily aimed at providing more liquidity in the market in the short term. The Chinese government has also instructed banks to turn a blind eye on loan maturity.

Waves of layoffs could threaten Beijing’s power

Observers anticipate that China’s central bank may relax the requirement for minimum deposits to banks, the so-called reserve requirement rate (RRR), this month. The lower the amount that banks have to hold, the more money they have to lend.

China’s government wants to prevent unemployment from rising, and waves of redundancies could threaten its power. Many Chinese people also endure the repressive system because the economy has gone uphill over the past few years. An increase in debt could help stabilize employment, which is important for growth in consumption and investment after the epidemic ends, according to engineer Pang.

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The promotion of the economy through state stimulus programs has a long tradition in China. In recent years, the government has tried to stimulate slowing economic growth with stimuli.

The deficit in China’s national budget has therefore been increasing for several years and has averaged 2.9 percent of gross domestic product in the past three years. However, many experts estimate the deficit to be much higher.

Even if the corona crisis is over, the consequences will be sustainable. “It will take years for the debt to be paid,” said UBS economist Wang. In addition, China is not using its investments efficiently and effectively. “Much of the debt that arises is basically not productive,” said Alicia Garcia Herrero, Asia Pacific chief economist for the French Natixis Bank. They were not enough for the level of growth that China is operating. “That means less growth in the future,” says Garcia Herrero.

According to a recent analysis by the rating agency DBRS Morningstar, there is a large structural gap between China’s local governments and the central government. Put simply, central government finances are strong and local government finances are weak.

Coronavirus – China

Employees with face masks work in a factory of a company that makes car windows. Earlier this week, several thousand workers were reinstated in Hebei Province.


(Photo: dpa)

85 percent of the total expenditure is incurred at the local level, but only half of the income arrives there. This has led to enormous mountains of debt. At some point, there must be restructuring. “And the central government should increase its share of the burden,” said UBS analyst Wang.

Much of China’s debt is domestic

The Chinese central government promised more help in early March given the additional burdens caused by the effects of the coronavirus. China will step up financial support for local government agencies, Chinese Vice Finance Minister Xu Hongcai said at a press conference.

The Ministry of Finance will accelerate transfers, particularly in the regions severely affected by the virus, to ensure the normal operation of local government and to ensure wages, Xu said.

Corona briefing

Most of China’s debt is domestic, according to UBS expert Wang, which makes the People’s Republic less vulnerable than other countries. “If tax revenue rises again because the corona virus is under control in China and factories resume work by the end of the first half of the year and consumers return to shopping centers and restaurants, fiscal pressure should ease in the second half of the year,” said Ing economist Pang.

The big question, however, is how the positive trend in China in the number of newly infected people will develop in the next few weeks. Experts warn that the risk of new infections will increase if the precautionary measures taken by the provincial governments are gradually relaxed. In addition, the risk of infection from travelers returning to China from affected areas from abroad is increasing.

More: The corona virus will accelerate deglobalization. The violent economic downturn caused by Corona will pass. But the long-term consequences remain.

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Corona virus: stock market crash 2020: how secure is the world financial system?

The corona virus hits the economy hard. Share prices are crashing all over the world. The fear is great. How stable are the global financial markets? .

Fluctuating stock exchanges: equity strategies for risk-averse investors

Dax panel

Frankfurt Stock Exchange: If you don’t want to bet on individual values, buy a fund.


(Photo: AP)

Frankfurt Whoever invests in stocks needs good nerves. This is clearly shown by the extreme price fluctuations after the outbreak of the corona epidemic. In addition, the industry, especially in Germany, showed weakness even before the onset of this lung disease.

The question is also whether the central banks can still save the markets. However, investors with strong nerves are already discussing when the right time to buy something comes after the shares have already become considerably cheaper.

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