Banco Popular’s Gonçalves favours Portuguese equities

Paulo Gonçalves, Manager of the Financial Assets Team at Banco Popular Portugal says to have seen the signs of recovery over the last months, but is cautious on fundamentals.

The recovery seems to be finally underway in Europe and periphery countries seem to continue to be attractive. Do you see any difference in your country in terms of investments?

Yes, both Portuguese equities and Portuguese bonds have been some of the best performers in their asset classes throughout the last year and that is the result of the change in the risk perception that international investors have about Portugal.

Even retail clients in Portugal have increased their investments in Portuguese equities and bonds in the last year, as they are now more confident in the country’s future.

The Greek government has just made its first bond sale in four years. Have you invested in that market recently/are you looking at it?

No, I haven`t invested in Greek government bonds recently and I`m not looking to investing in them for the time being. I believe that the Greek history is slightly different compared to that of other periphery countries.

It is true that Greek interest rates are going down very fast and with very big magnitude with all the liquidity that is going to all periphery countries, including Greece, but I don´t see big reforms in the Labour Market, for instance, or forms of privatisation like we saw elsewhere int he periphery.

I believe that Greece is further away compared to other countries to resolving its crisis. Also, the imbalances of its economy could result in the need of more debt restructuring in the future.

Stock markets seem to be recovering in the periphery, but fundamentals – e.g. unemployment, public debt levels etc.- seem still problematic. When do you think this situation will start changing?

In Portugal the unemployment has slightly gone down in the last months and public debt levels should peak in 2014 or 2015 and then start to decrease slowly.

The situation should take at least four or five years to normalise.The economic imbalances that led to the periphery’s current problems developed through several years; plus, the situation was exacerbated by the international financial crisis.

For this reason, the resolution of most of those problems should also take several years to be completely solved and it would be impossible to make all the necessary adjustments in just two or three years.

I think the main problems with most of the Troika programmes was that they aimed at a too short time-span to be completed.

Are you invested in the peripheral market in which you are based? And what would make you invest more in that market?
We have investments in both Portuguese equities and bonds, but we have been reducing our investment in Portuguese bonds over the last weeks due to the decrease of Portuguese interest rates.

As a result of that, we have been increasing our investment in Portuguese equities,as we believe that Portuguese companies will benefit significantly from the reduction in Portuguese interest rates and should also benefit from the recovering of both the Portuguese and European economies.

A more in-depth feature on recovery in the European periphery will appear in InvestmentEurope’s June issue. Stay tuned!

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