Ask The Experts: A Grexit Can Be Good For The Eurozone
Dan Ison, Head of Pan European Equities at Threadneedle Investments shares why it is a good time now to buy European equities.
Threadneedle thinks that ultimately Greece will leave the eurozone, and worries that the re-election on 17th June will prove to be inconclusive as the Greeks are not in favor of the austerity measures, while at the same time they want to keep Greece in the eurozone. The most likely situation would be a muddle-through scenario, and ultimately the support lines being given to the Greeks will be done through the ECB. Dan thinks that a fast exit of Greece is quite unlikely as we don't see the Greek population wish to leave Euro. However, a slow exit of Greece which should be a more negotiated option would ultimately be quite positive for the rest of the eurozone.
Dan thinks that the ability of the peripheral European governments to balance their financial books would seem very unlikely without some form of growth stimulus, and that growth would be good for the whole of the eurozone. Ultimately he is looking at the European-wide growth pact, when we see the meeting of the eurozone leaders taking place towards the end of June.
Situations in Europe could remain messy from the short to medium term, but in the longer term, Dan thinks the most likely outcome would be a more unified Europe. Ultimately the market will see a deleveraging taking place in those peripheral economies, but at the same time Dan thinks the structural reforms that would be introduced will lead to a more integrated Europe, and he can see some positive long term benefits for the eurozone.
From a medium-to long-term perspective, there are some positive outlooks for Europe as a whole. The European equity markets are currently offering a sufficient level of valuation discount to the rest of the world to justify that macro risk when investing in European risk assets at this point. Within the European equity market there are some very attractive companies which are essentially offering an exposure to the global growth, and at the same time are being priced at a very attractive level because of the association with the eurozone; one example being NestlÃ©, the international company based in Europe, which offers a dividend yield of about 4% (in Swiss franc terms), compared to the bond yield for NestlÃ© which is 2.5% (in Swiss franc terms), and the sovereign bond yield of Switzerland which is apparently zero. He thinks now is a once-in-a-decade type of opportunity to be involved with quality European stocks which will continue to grow their earnings in 10-15% range going forward.
1. In your view, will Greece leave the eurozone? Would the re-election in mid-June change the situation?
2. How will the situations play out in the peripheral countries in Europe?
3. What would be the most likely outcome of this eurozone crisis?
4. Why should investors invest in a European fund when the crisis should remain in the mid-term?
5. Where are the investment opportunities in the European equity market?
||: Ask The Experts: A Grexit Can Be Good For The Eurozone