Baring increases exposure to peripheral euro debt

LONDON | Andrew Cole, director at Baring Asset Management announced this week that the investment firm has expanded its purchase programme of Italian debt. Baring believes that European Central Bank interventions in the markets, improving liquidity available to European financial entities, have proven to act as a barrier against higher risk trends.

Mr Cole said that euro zone economic forecasts look gloomy this year and will possibly remain weak in 2012, too.

“However, with some of the obvious structural risks now mitigated, we believe there is investment potential to be found in European equities, particularly where their business is primarily derived from outside Europe, and in certain areas of the European debt markets. In particular, we recently increased exposure to Italian debt across our range of multi-asset strategies, attracted by yield levels and declining systemic risk in the region following action by the European Central Bank.”

Baring released the communicate with its views over the euro area’s ongoing crisis with the Greek bailout discussion on the background.

“The situation remains fast moving,” Mr Cole admitted, “but it is clear that the confidence of the negotiating partners in the ability of the Greek government to deliver the austerity measures they require is diminishing.”

Baring analysts think it is unlikely that euro zone country members would formally expel Greece. Instead, the experts point at the option of Greek authorities leaving of their own volition in response to the increasingly unrealistic demands of them by the creditors.

“Ultimately, however, this is a political decision, and therefore difficult to predict with any accuracy.”

Mr Cole also played down the contagion effect from an investment perspective, and dismissed the chances of a domino-like fall of the major peripheral economies within the euro zone whether Greece ultimately succeeds in staying in the common currency region or not.

“For the Eurozone as a whole, although some risk remains, the combination of a permanent €500 billion Eurozone bail-out fund, set to start by the middle of the year, and the availability of low-cost loans from the European Central Bank should help to shore up vulnerable areas of the financial sector, mitigating the risk of contagion, as well as lending support to countries such as Spain and Italy.”

About the Author

Victor Jimenez
London contributor at thecorner.eu, reporting about the City and the Eurozone economies. He regularly writes for Spanish newspaper group Prensa Ibérica--some of his features include shared work with journalists of The Daily Telegraph and the BBC.

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