EUROPE - The European Central Bank's anticipated interest rate rise is a "largely symbolic" move to make it appear to be tackling inflation, Schroders head of European equities Rory Bateman believes.
It follows the surprise announcement last month by ECB president Jean-Claude Trichet that an interest rate rise was likely to take place in April.
Bateman said any increase would be staggered and unlikely to have a significant effect on the profitability of European companies.
He also said although restructuring and defaults were likely in some of the peripheral countries such as Spain, Greece, Portugal and Ireland, it would not be enough to upset the recovery in core European markets.
He said: "Peripheral countries make up 12% of European GDP, which is simply not enough to put the recovery of the core European countries at risk. Similarly, peripheral countries make up less than 7% of European equity market capitalisation, which again is not enough to stop the core European recovery."
Bateman also said investors are beginning to move back to developed markets as the risk premia for emerging markets was increasing.
"People will require more risk premia to continue to invest in emerging markets," he added. "You can call it Chinese inflation concerns, tension in the Middle East, Korea, you name it -but there are incremental issues around emerging markets.
Given the 10-12 year considerable bull market in these countries, the valuations are becoming stretched and people are going to be a little bit more concerned about emerging markets and a bit more attracted to the developed nations such as the US and Europe. I'm not saying EM will fall off a cliff, but I do believe the equity risk premia associated with investing in these markets is increasing."
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