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MRB's Chart of the Week: Why you should sell euro equity
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by Phillip Colmar on Mar 15, 2013 at 00:01
The MRB Euro Area Policy Checklist for resolving the debt crisis has provided clients in recent years with a helpful guide to understanding the steps needed to preserve the currency.
A recent update highlighted that while the short-term necessary conditions have been met, the key longer-term steps have not, leaving investors uncertain and prone to panicking whenever the political backdrop deteriorates.
The chart shows the European Central Bank has successfully contained the financial fallout from the debt/banking crisis. This, in turn, has helped spur the rally in European and global equity markets since last June.
We do not envision any backsliding by the monetary authorities, given the potential for such a change in policy to hit markets. However, the critical ingredients to reviving growth, and thus stabilising the mounting indebtedness problem in the peripheral euro area economies, are still only being talked about, not acted upon.
To this end, a growth strategy to offset the austerity measures is one area where policymakers have not made much progress. Structural reforms to boost competitiveness are still lagging. And, critically, there has not yet been a political agreement on a banking union with proper oversight and official guarantees of the liabilities of the banking system.
We are mildly optimistic that further progress will be made on our 10-part checklist this year, but there are better global opportunities for investors given the economic weakness in Europe and slow pace at which euro area policymakers are moving forward.
Thus, MRB is still advising clients to stay underweight non-German stocks within a global equity portfolio, and re-establish hedges against euro currency weakness versus the dollar.
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on May 21, 2013 at 14:06