Between January and March, assets denominated in the European common currency across the globe shrank from 17.7 million in the last quarter of 2007 to 15.5 million, recording a 11.8% drop, according to EFAMA, the European Fund and Asset Management Association.
The drop in dollar-denominated assets was less evident, reporting a decrease of 5.1%, while assets in other currencies are actually increasing, as is the case for the South Korean won, the Brazilian real, the South African rand or the Taiwanese dollar.
EFAMA underlines that the “decline in assets reported in euro was exacerbated by the depreciation of the US dollar”, pushing investors to more rewarding money markets. However, the figures highlight a decreasing confidence in the European economy since the last quarter of 2007, after a continuous upward trend since mid-2006.
The credit crunch sparked by the US housing market is among the main reasons of the U-turn in euro-denominated assets. Indeed, the only types of funds recording an increase in assets under management both in euros and in dollars, were money market funds, whose cash lending activities are especially rewarded in periods when banks tighten their credit.
Bond and equity funds on the other hand revealed steep drops, driving the entire sector down. Again, the downward path is particularly marked in Europe, while bond funds denominated in dollars in the US are actually slowly increasing.
The bad news from the asset management industry is coupled with signs of lowering performance for the whole European economy. After the decline in the Eurozone economy forecast by Eurostat in the second quarter of 2008, several European and national indicators confirmed pessimistic overviews in the past weeks. Yesterday Standard & Poor’s joined the chorus by clearly stating that Europe “may be heading for a recession”.
