Fund managers give mixed review on eurozone package on second reading

Fund managers might have welcomed the eurozone deal struck in Brussels in the early hours of the morning of 27 October, but by Thursday afternoon they were taking a far more sober view.

Kevin Gardiner, head of global investment strategy at Barclays Wealth, called the deal a “sticking plaster solution for the immediate problems of eurozone countries…in the short-term just enough to ‘get the job done’.”

European stocks markets closed Thursday up. The Dax rose 5.35%; the Cac 40 by 6.28%; and the FTSE 100 rose by 2.89%. Both America’s Dow Jones and Nasdaq were above 2.5% higher by GMT 1900, also having digested US GDP numbers.

In the light of the eurozone deal, Barclays Wealth’s Gardiner advised investors to retain fully diversified portfolios, with a bigger weighting to risk assets than usual and. Low risk investors should favour cash over bonds, gold and the Swiss franc.

Jens Larsen, chief European economist at RBC Capital Markets, and his team said the deal “remains long on intentions and short on details. Until we know how the mechanisms will work, it will be hard to judge whether this will be sufficient to entice investors to provide support to European governments.”

Stuart Thomson, chief market economist at Ignis Asset Management, was even less optimistic. He feels 2012 will be “a year of recession in Europe and GDP will contract by 0.5%, (and) the recession will rob France of its AAA rating. The European agreement represents a pyrrhic victory for Germany and the ECB.”

France losing its top rating will “undermine valuations of the EFSF, raising the costs of funding in Europe and emphasising that the true triple-AAA European economies are restricted to three members inside the eurozone; Germany, Holland and Finland, and three members outside it; the UK, Sweden and Norway.”

Thomson said the bank recapitalisation plan and Greek haircut was inadequate; as was planned fiscal austerity from Spain and Italy, and the proposed leveraging of the European Financial Stability Fund (EFSF).

 

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