Euro assets tumble worldwide

Euro-labelled assets decreased sharply in the first quarter of 2008, confirming the gloomy economic sentiment towards financial markets, triggered by the credit crisis and its increasing impact in Europe.

Between January and March, assets denominated in the European common currency across the globe shrank from 17.7 trillion in the last quarter of 2007 to 15.5 trillion, 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 and the Taiwanese dollar.

EFAMA underlines that the “decline in assets reported in euro was exacerbated by the depreciation of the US dollar,” pushing investors in the direction of more rewarding money markets. However, the figures reveal that confidence in the European economy has decreased since the last quarter of 2007, after a continuous upward trend since mid-2006.

The credit crunch sparked by the sub-prime mortgage crisis in the US housing market is among the main reasons for the turn in fortunes of euro-denominated assets. Indeed, the only type of fund recording an increase in assets under management in both euros and in dollars was 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 of the eurozone economy forecast by Eurostat during the second quarter of 2008, several European and national indicators have confirmed pessimistic outlooks in recent weeks. Indeed, just yesterday, Standard & Poor’s joined the chorus by clearly stating that Europe “may be heading for a recession”.

Read more with Euractiv

Germany unveils law to block foreign takeovers

The law, aimed at protecting strategic domestic industries from unwanted foreign takeovers, was approved by the cabinet yesterday (20 August), despite insistence by German business associations that the move goes against EU rules on the free movement of capital.