Portugal Offers Most Upside: Gallo

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Nov. 22 (Bloomberg) -- Alberto Gallo, Head of European Macro Credit Research of the Royal Bank of Scotland, discusses the economic outlook for various EU countries and his subsequent investing strategy. He speaks on Bloomberg Television’s “On The Move.” (Source: Bloomberg)

Say that germany will lead a recovery within the core countries but that spain will lead the recovery within the periphery.

Europe's recovery is sustainable.

Deflation risk that we face today is because there has been too much austerity and too much bank deleveraging.

We have less bank deleveraging because the ecb will slow that down and he'll banks within the bank community.

His deflation problem will be solved and the recovery will be sustainable.

The tide is not turning the same way everywhere heard some company -- some countries have more work on reform.

They will underperform.

How much concerned you have about france?

The political situation is still unstable.

A right-wing coalition could move into place which could talk about leaving the euro.

Long-term economic view is concerning the lack of reforms.

You have only scratched a service in france as well as italy.

However, if you have to take an investment deal it is very dangerous to be short anything.

We have an loan transferred for two years.

The banks have really heal themselves over the last three years.

We still have a positive view from an investment direction, but we are concerned about the lack of reforms.

Give me a sense of your favorite wafer 2014. and i want to talk about the banks.

The country said thing better from a growth perspective.

Portugal is one of the countries that offer some most upside.

A lot of investors cannot touch the high yield.

It yields a lot of premium for investors.

Those were the favorite places we have heard there's a lot of concern about the banks.

A lot of people are coming on this program saying they are investing in banks because he still offer one of the best opportunities if growth picks up . you say 15-20% banks will fail.

Overall it will have a positive effect.

The cases of ireland and spain have shown the transparency works.

If we separate out from good banks and the better ones do well.

The stress test will bring clarity.

It will separate the 15-20% of banks from the rest.

The good banks by the end of next year will start lending again.

That is a positive.

In the meantime there is a lending cap that policymakers have to fill.

The ecb cannot solve this with credit easing.

European investment bank musts start lending across europe.

Alberto, we had this bloomberg hole yesterday in which investors said they were afraid of bubbles from house prices to tech companies.

This is something you also pinpointed for 24 june.

Her husband too much recourse for central banks to sell problems.

Governments have been complacent because of the environment to do reforms.

In the u.s., central banks have done a lot of qe.

The uk is still near six percent deficit and the u.s. has also failed to reform healthcare and other thing.

The recourse to qe has created bubbles in the u.s.. the market is at record low yields for example.

Other areas of the financial markets as well.

We really stay away from the uk or the u.s. bonds because these areas are very frothy and we will see mostly downsides for bondholders next year.

You mentioned the uk property market.

This could burst in 10 years.

That is true and we do continue -- and we do forecast it will continue to rise.

You're going to have inflation and actually because people are taking more leverage this makes it harder for the bank of england to raise rates.

It is losing independence because of the health to buy program from the government.

The only independent central banks, the ecb, that is a good thing if you're buying bonds in europe.

Alberto, thank you so much for that.

Alberto gallo with his outlook for 2014. can the dorchester brand make it in asia?

We will bring you back for the interview next.

This text has been automatically generated. It may not be 100% accurate.

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