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Everyone's talking about... Europe
Professional Adviser | Author: Laura Miller
In the second part of our new series looking at the most topical investment themes for the
quarter ahead, Professional Adviser asks multi-managers what lies ahead for Europe as
deflation, elections and QE loom large?
The eurozone has just recorded falling prices for the first time in more than five years - deflation,
technically.
That is far from its only concern. Several European countries have elections this year, generating
the sort of uncertainty financial markets hate.
The Greek election can upset the apple cart but I don't expect it to exit the eurozone
Then there is the prospect of Greece leaving the eurozone, and whether the European Central
Bank will launch the anticipated bond buying programme (QE), and to what effect.
Multi-managers - who look across the whole investment universe - give their view on where the
ripples are being, and will be, felt.
Architas chief investment officer and fund manager Caspar
Rock
QE in Europe would have a positive impact. It may have a more substantial impact on assets
prices than economies.
I am surprised by how sanguine markets have been about Greece, given the upcoming election.
Italy and France need labour reform. As an example, in Italy a thousand police officers were due
to be on duty on New Year's Eve - 85% called in sick.
Deflation is clearly in Europe, grist to the mill for those who want QE there.
Investec Asset Management multi-asset strategist and
portfolio manager Max King
Europe won't be a disaster story - 1% growth is probably a long term trend.
QE won't revive the Eurozone, because banks won't lend.
Greece wants to pretend it can pay its debt, and the opposition wants to admit that it can't. It will
be a fudge of some kind. The right outcome for Greece is probably to leave [the Eurozone] but it
won't happen.
Fidelity Worldwide Investment multi-asset portfolio manager
Nick Peters
There are upcoming elections in Greece, UK, Spain and Portugal. We've seen an increase in
protest parties like UKIP. Local politics is becoming a far bigger issue in Europe.
Questions around whether QE will work means we are are neutral Europe ex UK at the moment.
Schroders multi-manager fund manager Robin McDonald
I have a slightly more optimistic view on the European equity market. This year we prefer to
expose our portfolio to European equities rather than US.
European economies are coming off a very low base. There is quite a lot of optimism priced into
the US economy and pessimism in the European market so that's a good start for us.
And the US economy has doubled its money supply at the same time that the ECB has halved it,
which has had an impact [on US equity markets].
The euro has weakened compared to last year, so that is now a tailwind for European businesses.
European bond yields are low so that is also a tailwind - European companies can borrow very
cheaply.
Things like the Greek election can upset the apple cart but I don't expect Greece to exit the
eurozone. And if there is a sell-off we would see that as a buying opportunity.
European equities have the potential to surprise positively this year.
JP Morgan Fusion multi-manager Nicholas Roberts
Deflation [in Europe] is largely driven by the oil price fall. Even the Germans know the situation
is getting serious. The ECB is meeting on 22 January - we expect [President of the European
Central Bank, Mario] Draghi to announce full scale QE.
The Germans are benefiting more than anyone from the euro at 1.17, because they are an
exporting nation.
I think the Greeks will get their debt extended.
The key question is 'how much is priced into the market'? The fall in the euro from 1.40 to 1.17 is
definitely priced in. We're waiting for confirmation on QE before action - we think QE is
warranted, and desperately needed.
City Financial multi- managers Peter Toogood and Anthony
McDonald
There isn't deflation in Europe - [the fall in oil prices] is disguising a lot of things. Growth is pretty
anemic. The ECB is trying to get banks to lend but it is to be seen whether that comes through.
Markets are trading on the hope. Our best guess is that in the next month people will start
believing [if European countries continue reforming]. But it is a long term reform story - over the
next few months disappointment will set in, it will be volatile.