Europe has the ability to keep managers awake at night but Fidelity’s Paras Anand said the view by some it will go the same way as Japan is not one of his concerns.
The group’s head of European equities said of all the worries circling the eurozone as present, the prospect of it entering a period of Japan-style deflation was not something he expected to happen.
“There are many things to worry about in Europe,” Mr Anand told the group’s media conference today.
“The political background is challenging, there are concerns over the UK’s membership of the eurozone and several others.”
He added: “The European corporate sector is more flexible than the Japanese sector was. Importantly, the corporations still function in the interest of shareholders in terms of dividends. In Japan, the best option for investors was just to hide their money under the mattress.”
Japan experienced an asset bubble in the 1980s, which then peaked at the end of 1989. In the next two years the stockmarket fell more than 50 per cent and stock prices remained downcast for the next decade.
But Mr Anand said that the situation behind the Japanese deflation was drastically different to the scenario now facing Europe.
One reason the Japanese had a such a long stint of deflation was because of the yen carry trade, Mr Anand said.
A currency carry trade is when investors borrow in one currency and invest in another. This led to a continuation of the depreciation of the yen.
While Mr Anand acknowledged there is some risk of this happening to the euro, he thought currency movements will be less distorted than they were for the yen and the differential between rates will not be as drastic.
