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Greece? We're not worried, say managers

As Greece enters a last-ditch round of bailout talks, fund managers say they do not see disaster ahead.
June 25, 2015

Fund managers say they are not panicking over Greece's ongoing debt negotiations, with some even beefing up exposure to the nation due to what they argue are attractive valuations.

Greece has spent the past week mired in intense bailout talks in a bid to unlock the €7.2bn in bailout funds needed to prevent it from defaulting on its debts at the end of this month. The country has looked perilously close to a eurozone exit at times, but fund managers say they are not worried.

David Reid, manager of BlackRock Emerging Europe (BEEP), initiated a position in Greece this year and it now accounts for about 6 per cent of the trust's assets. He says: "We are optimistic on Greece. There is consistent popular support for staying in the euro - about 70-75 per cent - and even when you ask people whether they'd accept a deal to stay in the euro with tough conditions that still has majority support.

"The gap between Greece and creditors has narrowed quite a lot. We know roughly it's about half a per cent of gross domestic product (GDP) in terms of public spending two years out. That's not a huge sum in the scale of things. A Grexit scenario would certainly cost a lot more in public spending."

"Popularity, economic logic and even social welfare would point towards an agreement."

Stephen Macklow-Smith, manager of JPMorgan European Investment Trust (JETG), takes a similar view. "We do not think Greece will be leaving the eurozone," he says. "At this point in the negotiations, creditors essentially hold all of the cards: the Greek banks are entirely dependent on the European Central Bank (ECB) for funding and Greece has very little leverage."

In fact, the market has already anticipated the two most likely scenarios, according to Guy Stephens, director at Rowan Dartington, and the impact on markets and investments would be small. He says: "None of this is coming as a surprise and there are three possible outcomes, one of which is quite unthinkable, while the other two involve muddling through." He thinks a full Greek default and retraction of ECB assistance is an implausible ending to the eurozone saga.

Stanhope Capital's chief investment officer, Jonathan Bell, and Ben Seager-Scott, director of investment strategy at Tilney Bestinvest, meanwhile, are not making any dramatic portfolio reshuffles. "We have maintained a relatively stable exposure to risk assets for typical mandates despite the occasional temptation to drop exposure," says Mr Bell.

Mr Seager-Scott adds: "The direct impact on most investor portfolios will be minimal."

Guy Foster, head of research at Brewin Dolphin says: "A benign outcome to the crisis is the most likely scenario and as today's eurozone purchasing managers' index figures reiterated that the underlying story of the eurozone economy remains one of an entrenched recovery with plenty of headroom to grow into."