Bringing you live news and features since 2013
Bringing you news, views and analysis since 2013

5317

Tougher times ahead for the euro, says Charlie Macquaker

RELATED TOPICS​

The continuing drama triggered by the Greek debt crisis has contributed significantly to the volatility of European stock markets and beyond.

Charlie Macquaker, head of Walter Scott’s European team, foresees further weakness of the euro and greater political and fiscal coordination.

“Deciphering what will happen next in Europe is as easy as grasping a slippery eel,” he says.
 
However, the political will exists to continue to promote the euro and the Eurozone, according to Macquaker.

“In the recent period, we have seen unprecedented political coordination between France and Germany. However, at times, such collective efforts are fraying at the edges when encountering national issues,” says Macquaker.

A case in point includes the recent moves by the German regulator to ban temporarily naked short selling of the shares of ten of Germany’s biggest financial institutions. The clampdown also prohibits naked credit default swaps on Eurozone government bonds.
 
European Union finance ministers agreed on 9 May emergency measures worth EUR750bn to prevent the Greek debt crisis from affecting other Eurozone countries. Under the terms of the European Stabilisation Mechanism, the 16 members of the Eurozone have access to EUR440bn of loan guarantees and EUR60bn of emergency European Commission funding. The International Monetary Fund also pledged to contribute up to EUR250bn. Earlier, Eurozone leaders had approved an EU/IMF-backed EUR110bn loan package to Greece.
 
“While we by no means view this bail-out as a complete fix, in reality it just provides time for Greece and its peripheral European neighbours to start reducing their high levels of indebtedness,” says David Leduc, head of global fixed income at Standish. “We still believe that there is a genuine possibility of Greece choosing to, or even being forced into, restructuring its debt. After all, having time to sort out its issues is all well and good, but the likelihood of the Greek economy returning to growth while simultaneously being squeezed by the unprecedented austerity measures seems very optimistic.”
 
Investors have also been concerned about Spain and Portugal but Leduc does not expect the two countries to suffer to the same extent as Greece.

“In short, their fiscal imbalances are a lot less severe and their debt levels not nearly so high, while the bail-out offers them much-needed breathing space to avoid the same intense investor speculation that so dogged Greece,” he says.
 
“There’s no hiding from the fact that the bail-out package fails to solve the deep-rooted debt problems that face much of the Eurozone but it does provide much-needed time for those other struggling economies, along with reassurance for the numerous European banks that have large investments in peripheral Eurozone government debt.”
 
Concerns about Greece’s sovereign credit risk have brought the credit quality of the UK, and even the US, into sharp relief, in Leduc’s view.

“As a combined entity, the Eurozone is in better health than the US economy, although the UK economy is worse off than both of these. There is clearly a risk of contagion but the recent UK general election has at least provided some stability for the markets.
 
“With this uncertain backdrop, we think it is quite prudent to remain underweight or short the euro. In other parts of the global bond markets, we still see plenty of investment opportunities. We see value in those Asian and developing world economies that boast higher growth prospects and are in better fiscal health,” says Leduc.

Latest News

Data provider Preqin has published its Deal Flow Monitor: Q1 2024 report, examining trends in..
Global index revenues increased 9.3 per cent in 2023, totalling a record USD5.8 billion, according..
Octopus Investments (Octopus) has announced it has launched a Natural Capital Strategy...

Related Articles

Trends
The trend to buyout among the UK’s smaller defined benefit (DB) schemes continues with a slew of new sub GBP100 million deals announced this month alone...
The trend to buyout among the UK’s smaller defined benefit (DB) schemes continues with a slew of new sub GBP100..
Different flavours
In what is believed to be the first survey of its kind in the UK market, Nedgroup Investments, the investment-led, multi-boutique global asset manager with over USD20 billion under management, recently undertook a survey with 204 UK investment professionals, seeking insights into their perceptions and attitudes towards boutique asset managers...
In what is believed to be the first survey of its kind in the UK market, Nedgroup Investments, the investment-led,..
UK map
UK local government pension schemes (LGPS) are leading the charge on investment in private markets issuing tenders set to be worth billions of pounds in the coming years...
UK local government pension schemes (LGPS) are leading the charge on investment in private markets issuing tenders set to be..
The trend of private equity firms acquiring businesses in the professional services sector continues with CVC Capital Partners eyeing a possible buyout of EY’s Italian consulting branch...
The trend of private equity firms acquiring businesses in the professional services sector continues with CVC Capital Partners eyeing a..
Subscribe to the Institutional Asset Manager newsletter

Subscribe for access to our weekly newsletter, newsletter archive, updates on the site and exclusive email content.

Marketing by