Investors tip Greek election picks
Managers look at peripheral investment opportunities as Greek election looms.
Fund managers have tipped a potential opportunity to invest in peripheral Europe, as Greece heads into a second round of elections.
The country held elections last month but no outright winner emerged and the parties with the most votes were unable to form a coalition. The focus now is on new elections set for this Sunday (June 17).
The contest is expected to be a two-horse race between the centre-right New Democracy party led by Antonis Samaras and the leftist coalition Syriza led by Alexis Tsipras.
Mr Tsipras has said he wants to alter the conditions attached to any further bailout funds Greece receives from the EU, which has previously insisted on stringent austerity measures in Greece in return for funding. Data from recent opinion polls suggests a Syriza lead at present.
SVM Asset Management co-founder Colin McLean said if Greece fails to meet the EU’s conditions and is forced to leave the euro the new drachma would devalue sharply against other currencies – and this would “reset” the economy.
“There would be investment opportunities in Greece, particularly in more export-led or tourist businesses,” he said.
Mr McLean added he tended to be “more pessimistic” on whether the single currency will remain intact, in spite of the difficulties economies with new currencies would face in paying back their euro debts.
“If Greece was the only country in trouble it could be given special treatment but there is nothing which can be done for Greece which can’t then be done for Spain,” he said.
David Tan, head of the global rates team at JPMorgan Asset Management, agreed that the drachma’s depreciation would plunge Greece into a “deep recession” that could eventually throw up buying opportunities.
Ken Hsia, manager of the £26.8m Investec European fund, said the group’s 4Factor quantitative analysis is “not steering” him towards peripheral European companies at present.
But although he said he was unsure as to whether Greece would exit the euro, the manager added that an exit and default for the Mediterranean economy would benefit it –albeit after a short-term hit.
“It seems like the only way for them to improve their economy is to get that rush of adrenaline of a more competitive currency,” he said. “However, if they do that, the people who hold their debt will lose out.”
Mr Hsia said the issue of “who takes the pain” was presently being discussed in Europe.
“But history shows [a default] is a reasonable solution for the people of an indebted country,” he said.