Chris Rice: head of pan-European equities at Cazenove Capital
Chris Rice, head of pan-European equities at Cazenove Capital, thinks the UK’s austerity measures will fail to get the economy growing.
Rice said that with households deleveraging and cuts to government spending, Britain needs an enormous increase in demand from companies or from outside the UK to stave off recession.
‘But demand from our biggest trading partner, Europe, is effectively negative and companies are fearful of consuming because they don’t know what’s going to happen,’ the manager added.
Instead, Rice suggested that devaluing the pound through more quantitative easing (QE) is the only available path to recovery.
‘Terms of trade will collapse as it becomes more expensive to go abroad. We will all get poorer as import inflation will remain consistently higher than wage inflation,’ he said.
According to Rice, more QE will broaden the monetary base in the short term but will not get into the real economy. This will build up into a ‘nuclear bomb’ in the system that will be released once a recovery begins, forcing up prices even further.
Speaking before the last week’s eurozone fiscal deal, he gave Germany two options. To step backwards and leave the union, a legally more straightforward option than allowing a weaker state to break away, or to leap forward and head up a tighter political and economic union.
A German exit would cause a returning Deutschmark to become an enormous safe haven ‘killing exports for a generation, that’s why Germany’s political elite want to leap forward,’ he said.
He predicted that leaders would announce a timetable next year for a treaty change, ‘which will be for more European integration’.
Germany, the continent’s strongman, would then allow the ECB to buy enough sovereign debt to instil confidence in the markets, rather than announce the unlimited purchase of southern European bonds.
His one year predication was that the FTSE will have reached 5,500, be ‘stuffed full of Russain miners and growth stocks,’ and that European markets would be up 15%. However, he did think that at least one country will have left the single currency in three years’ time.
He advised to be ‘very long emerging markets’, but warned that ‘it’s the price you buy an asset that’s important, not the 30-year to 40-year expectations. There is zero correlation between GDP growth and stock market return’.