July 2007

FUND SALES: Great expectations

Portugal is a market constantly on the verge of taking off, says Bella Caridade-Ferreira 07_07_portugalDespite being a small country, Portugal was, in its heyday, one of the world’s most powerful nations. It became a country in 1143 and just a few hundred years later, this seafaring nation set out to discover the world. Explorers such as Magellan, who made the first trip round the world, Vasco da Gama, who discovered an ocean route from Portugal to the East, and Bartholomew Dias, who sailed round the southern tip of Africa, re-drew the map of the world and brought wealth and status not only to Portugal, but also to Europe as a whole. However, Portugal lost much of its wealth and status following the destruction of Lisbon in a 1755 earthquake and the Peninsula War against Napoleon, which destroyed the social and political fabric of Portugal and ushered in an era of turbulence, instability, and economic crisis. The final nail in Portugal’s coffin was the independence of Brazil from Portugal in 1822. And Portugal has never really recovered. Although far from being the smallest country in Europe, Portugal’s economic development is underdeveloped when compared with many of its European neighbours. It is, for example, geographically bigger than Belgium, the Netherlands, Denmark and Switzerland, but has only a fraction of their economic strength or household financial assets.  
  The same applies to the Portuguese fund industry. Portugal is one of Europe’s minor markets, ranking 15th out of 27 markets in Europe. A lack of real growth has resulted in Portugal being leapfrogged by the likes of Finland, Norway and very soon Poland, with which it has only a e1.5bn difference. Greece is the only ‘old European’ to have performed worse in recent years. The Portuguese are generally savers and not spenders, and have one of the highest savings rates in Europe. The economic uncertainty, unemployment and lack of morale that Portugal has suffered in recent years would normally increase the precautionary incentive to save, but as we can see from the sales charts, mutual funds have not been the beneficiaries of any additional savings. In the last twelve months, Portuguese investors withdrew e867m from the industry. The year 2006 closed with net redemptions, and given the trend so far this year, 2007 is likely to do the same. Despite the downturn in the domestic industry, cross-border groups do comparatively well in the Portuguese market. In 2006, for example, foreign equity funds achieved flows of e380m against local sales of e307m, and in the bond arena, foreign providers registered a small but positive sales volume of e67m, whereas local bond funds sustained net redemptions of e1.3bn.
As an immature market with significant growth potential, Portugal is often on cross-border managers’ target lists and it always appears to be on the verge of taking off. But Portugal, like its football team, never quite lives up to expectations. • Bella Caridade-Ferreira is a senior market analyst at Feri Fund Market Information. © fe July 2007

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