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Octopus CIO, Lothar Mentel, urges coordinated action from policymakers

23 July 2010

Octopus Investments' Chief Investment Officer encourages confidence building in his quarterly outlook

Octopus Investments' Chief Investment Officer, Lothar Mentel, has encouraged policymakers around the world to engage in more coordinated action around policy making and its implementation, in order to help sustain economic recovery. He underlines this is crucial in light of the widely-feared and prophesized double dip and stresses that governments must heed both past and more recent lessons from history. Mentel, a regular commentator on channels such as CNBC, runs the Multi Manager team at Octopus comprising eleven multi manager funds, with over £600 million in assets under management.

"The course of previous recessions shows that double dips are precipitated by policy mistakes rather than anything else. What we've seen recently is a lack of coordinated action from governments around new policy. Due to slow and sometimes erratic action, governments have not helped financial markets stablise as they did during the financial crisis of 2008-9. This has led to confusion and negative sentiment, resulting in market falls that are at odds with positive company fundamentals and underlying steady economic progress."

Mentel cites the recent short selling ban imposed by Germany as an example. "This decision was domestically and politically motivated. But it caused consternation in the markets, leading to steep sell offs." Mentel also points to how other policy changes have impacted on markets. Unilateral regulatory changes, the much-delayed EU rescue package to Greece, and the disappointing outcome of the G20 summit in terms of financial regulation and fiscal policy coordination, have all had an adverse impact. On the other hand, the decision by the Chinese Government to loosen its Dollar peg had a more beneficial impact on world sentiment. However, Mentel warns, "Politicians need to be aware that, after two years of economic and financial upheaval, the margin for error has diminished."

Mentel sees the introduction of US Financial Regulations legislation, the passing of the Dodd-Frank bill, and the completion of European bank stress tests by the majority of the EU banking sector all as measures which should help to bring much needed structure back to financial markets. He concludes, "It's interesting to note that we are now seeing credit conditions in the US beginning to ease just as the US authorities are leading the trend to create a proper regulated framework for the structured credit markets. In contrast, Europe's policymakers remain uncoordinated on this topic, so while the continent continues to experience very tight credit financing conditions, European economies are constrained by lack of credit. It seems clear that policymakers hold the recovery in the palm of their hands."

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