EU takes control of Greek economy
Last week’s €130bn deal on Greece’s second bail-out effectively saw the EU take control of the Greek economy. Banks and private creditors will see steep write-downs on their holdings of Greek sovereign debt. Greeks themselves will also bear the burden with European creditor countries demanding 38 specific changes in Greek tax, spending and wage policies. So it appears Europe’s politicians are determined to demonstrate to the markets that the latest deal will not be allowed to be fudged like the previous one and that Greece will conform.
What are investors saying?
Events in Europe dominated the markets last year but sentiment has improved markedly this year, so how do professional investors see the latest agreement impacting on their investment strategies? We asked a number of our fund managers for their reactions.
Global equity manager Mark Evans of THS Partners commented: “The agreements to take a private haircut on Greek sovereign debt and proceed with the second tranche of the bailout are significant steps towards the resolution of the European debt crisis. By preventing a disorderedly default and thus reducing the risk of contagion to other euro nations, eurozone policy makers have once again demonstrated their long term commitment to the euro.”
European equity manager Stuart Mitchell of SW Mitchell Capital expressed the following view: “Despite the repeated anxieties of many commentators about the outlook for the global economy, we could see no sign of this when meeting with companies in Europe. Conversely, we have repeatedly heard that demand from the US is ‘surprisingly strong’. Recent performance in markets would seem to support this view”.
Of course, events in Europe do not just affect equities or indeed government bonds; corporate bonds are also subject to the vagaries of the market so it’s helpful to contrast the equity view.
Corporate bond manager Zak Summerscale of Babson Capital observed “The announcement regarding the agreed terms for the second bailout package provided for Greece has significantly reduced the short term threat of default and associated risk of departure from the eurozone. Whilst the steps taken have been positive for markets, we do believe that there are still wider economic headwinds that both global and eurozone economies face. Although corporate bonds will not be immune to any wider market volatility, we remain confident that the defensive nature of the Senior Secured asset class continues to provide investors with an attractive High Yielding strategy with strong downside protection as low growth conditions persist”.
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