Greek ‘default’ more important than ratings news, says Henderson manager

John Bennett, director of European equities at Henderson Global Investors and manager of the Henderson European Focus Trust, believes that last Friday’s news that Greece had ceased to negotiate with bondholders was more important than S&P’s downgrade of sovereign debt, because it signalled that an actual ‘default’ had taken place on Greek debt.

He said that the signs pointed to an ongoing run on banks in Greece, with the key question now being whether this activity would spread to Portugal.

Meanwhile, it still looked less likely that the euro would break up, if only because the pain this would inflict on German companies would be greater than the cost to Germany of bailing out weaker eurozone economies.

Germany is unlikely to ditch these weaker members to set up a ‘hard’ currency zone, perhaps including top rated Finland, as well as Austria and the Netherlands, and probably France, because that would cause an overnight recession in Germany sparked by a currency that would be too strong, Bennett said.

Overall, Germany loves the euro, he added.

Despite the gyrations in foreign exchange markets, Bennett said he does not currency hedge for his fund. Partly he feels he is not skilled enough in currency markets to do so, and partly because the benchmark against which his fund is measured does not do so either.

Bennett’s view is that European investors face a bear market that could run for several years yet. Central bankers are not, however, allowing the type of recession that would end this bear market period sooner.

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