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December 4th, 2011:

Managers warn of windfall targets

Dec. 4, 2011

By Steve Johnson

European fund managers are warning of the dangers of investing in energy, telecoms and tobacco stocks amid fears these sectors could be hit with windfall taxes by increasingly cash-strapped governments.

Such moves, mirroring a tax raid by the UK government on the oil and gas industry in March, “should be a major concern for investors”, according to Chris Bowie, head of credit at Ignis Asset Management. “If this can happen in the UK then it could happen across the globe.”

Clive Beagles, co-manager of the JO Hambro UK Equity fund, similarly warned: “If austerity really bites in the western world what are the easiest targets? Tobacco, utilities, etc. The classically defensive stocks may actually be quite dangerous in the next 18 months.”

Mr Bowie feared potential windfall taxes could “severely dent” the earnings of companies in the oil, gas and telecoms sectors.

“Consumers and governments do not have cash but companies do.

“There are a number of market leaders that are generating strong cashflow, for example, Telefónica and Santander in Spain and Telecom Italia in Italy,” he said. “This [windfall tax] scenario is not pure conjecture, this has happened in the recent past.”

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