Some of Europe’s strategists and largest investors are recommending loading up on the region’s equities once the Greek impasse ends -- no matter what the outcome.
The Euro Stoxx 50 Index has dropped to a four-month low, a gauge of volatility is near an all-time high versus that of the U.S., and officials are raising the prospect that Greece will leave the currency bloc. None of that is bad news to Pictet Asset Management’s Luca Paolini and AXA Investment Managers’ Gilles Guibout, who see a buying opportunity.
“We are pretty much waiting for almost any outcome to buy,” said Paolini, chief strategist at Pictet, which manages about $460 billion. “If there is a Grexit or a default, there will be a final selloff, which will be a good entry point for us. The fundamentals of QE and earnings growth would then reassert themselves.”
Favorite markets of AXA’s Guibout include Spain, where the IBEX 35 Index has trailed peers this year, and Italy, whose FTSE MIB Index has reached a three-month low.
“In the case of a really negative reaction, some opportunities could arise,” Guibout, a manager who helps oversee about $760 billion, said from Paris. “A massive correction in Italian financials could offer a nice opportunity. This trade has the most sensitivity to a potential rebound.”
The Euro Stoxx 50 has lost 9.8 percent from its April high, with the back-and-forth talks over Greece sending it down for three straight weeks, its longest streak since October. The gauge traded at 14.9 times projected earnings on Monday, compared with 17.6 for the Standard & Poor’s 500 Index.
Euro-area Finance Ministry officials will have a call about Greece on Tuesday after discussions broke down over the weekend. The nation said it has no plans to present new proposals at a meeting of European finance ministers later this week.
“In these volatile markets, we are waiting to exploit any kind of price overreaction,” said Asoka Woehrmann, chief investment officer at Deutsche Asset & Wealth Management Investment in Luxembourg. His firm manages about $1.3 trillion. “Almost every month since the new government in Athens took power has been labeled as decisive. We therefore shouldn’t lose our calm.”
JPMorgan Chase & Co. says investors will be reluctant to buy the dips in European stocks until Greece and its creditors seal a deal.
“Greece remains the wild card,” strategists including Mislav Matejka wrote in a June 15 report. “Global investors would need to get some clarity on this front in order to commit fresh funds to the region. Otherwise, it might appear to be poor timing to add to positions.”
At the same time, the bank said, capital controls would eventually force Greece to seek an agreement, giving investors more certainty to decide what to do.
“Even if we have volatility in the near term, you have opportunities,” said Guillaume Duchesne, an equity strategist at BGL BNP Paribas SA in Luxembourg. “You’ve had some positive evolution in the banking sector, which we like in Europe. In Italy, you also have some expectations for M&A in the summer.”