Fidelity Worldwide Investments’ Rossi and Wells comment on European situation
Dominic Rossi, Global CIO Equities at Fidelity Worldwide Investment and Andrew Wells, Global CIO Fixed Income see politics as the key to making Europe an attractive long term investment proposition.
Rossi (pictured) said: “I am not surprised we are here and it now looks inevitable that Greece will leave the Euro. In terms of Spain and Italy, things will get worse before they get better. I don’t think it will be long before Spain will need to seek official assistance in the recapitalisation of its banks from both the ECB and the IMF. In Italy, things look a little better. The country is starting to generate the primary surpluses it requires to stabilise the situation but as the economic situation deteriorates the debt dynamics will worsen.
“It is clear now that Greece does not have the mandate of its people to implement austerity. If Greece does leave, the thing to watch will be the opinion polls in both Spain and Italy. The austerity programmes in these countries have been losing support publicly over the last few months. What I believe we will see is a very firm jolt to public opinion and that will give greater legitimacy to the Spanish and Italian governments to get on and do what they need to do.”
Andrew Wells, said: “Markets have suddenly realised that you cannot negotiate long-term refinancing with a government that changes on a constant basis. What is driving Greece away from Europe is a lack of political long-term stability which means that it is impossible to deliver a long-term financial solution.
“This means there has to be a resolution around Greece before any sort of confidence comes back to the markets. The general feeling now is that Greece will leave the Euro and there needs to be a massive show of support for the economic Euro state that remains behind, whether that be a recapitalisation of the banks in Spain, a five-year LTRO or something else.”
Rossi added: “Capital preservation should be the overriding strategy. At this time, investors should be focused on equity income where they are getting income but they are also investing in lower volatility stocks. That strategy is definitely working.”
Wells said: “This is not the time to be jumping into high risk assets because the political uncertainty remains. High quality companies in the US or in the core of Europe or high quality bonds are the place to be until the political roadmap is more certain and investors can decide whether they want to build in more risk.”