Woolnough highlights threats to markets in 2012

M&G’s bond fund star Richard Woolnough said the impact of eurozone failure and the potential introduction of trade barriers by major economies are the two greatest threats to markets in 2012.

Woolnough said, in the short term, the legal implications of the collapse of the euro remains the key risk to investors.

“What really concerns me is how the euro fails,” he said.
The collapse of the euro –and the exit of member states such as Greece – has been at the forefront of investors’ minds since yields on the debt of peripheral economies began to spike last year.

However, Woolnough suggested it may be better for the euro to fail in the longer term, predicting order would return after the initial upheaval.

“The single currency is a very difficult and impractical idea. If it was removed there would be chaos, but afterwards you would have a better functioning market.”

Woolnough suggested one way to tackle the crisis would be to convert the euro into a new currency, taking away the uncertainty for investors.

“Legally that would let investors know where they stand,” he said.
Woolnough’s range of funds – which include the £5.3bn Corporate Bond and £5.5bn Optimal Income funds – have so far navigated the eurozone crisis, delivering positive returns ahead of peers.

Woolnough’s other big concern is the introduction of restrictions on trade by countries around the globe.

“The arrival of trade barriers means production falls, and inflation spikes,” he said. “That risk worries me over the medium term.”