GLOBAL – The US will not fall off the so-called ‘fiscal cliff’, China will meet its GDP targets and Greece will stay in the euro-zone but perhaps not for long, according to experts on an investment panel at the IPE Awards Seminar in Copenhagen.
In a straw poll on whether Greece would exit the euro-zone within the next 18 months, 62% of the 200-odd delegates at this year’s seminar said ‘no’, while 38% voted ‘yes’.
Panellists were also split on the subject, with Peter Hensman, global strategist at Newton Investment Management, stressing that there was a “political desire to keep this project going”, as it made sense for Europe to act collectively in a globalised world.
Jasper Kirstein, chief executive at Danish consultancy Kirstein, said there might be advantages for Greece in remaining within the euro-zone and then “compressing” real wages, rather than doing so outside the monetary union.
However, Damien Miller, global head of special situations at Alcentra, a specialist in sub-investment grade corporate debt, said Greece would most likely leave the euro-zone, as its citizens were “bound to throw in the towel at some point”.
“Greece is massively overleveraged, and I do not see how it can deleverage to a sustainable level ever over a long-term period,” he said.
But he also placed Greece’s debt problem within a greater European context, where “more debt is piled upon debt” and default rates are kept “artificially low”.
Because this “cannot continue” and banks will have to sell off somewhere between €1.5trn and €2.5trn in credit, Miller sees “tremendous” investment opportunities.
More consensus on the panel was seen over developments in the US and China.
Miller said: “An overwhelming proportion of investors worldwide would like the US to go off the fiscal cliff, as this would present another purchase opportunity of a lifetime similar to the period after the Lehman Brothers collapse.”
But he said he did not think this would happen, “because nobody wants it to”.
Instead, there will be “another band-aid solution”, particularly because the risk has been “well telegraphed in the market” and priced in.
In the straw poll, 80% of the audience members agreed the US would not fall of the fiscal cliff.
Similarly, Kirstein said it was “not an option” for the US, and that he was convinced that even the Republicans were showing signs of being open to cooperation.
Hensman pointed out that the prevailing “high degree of uncertainty” had had a major impact on corporate behaviour, as business had suspended investments in the run-up to the elections.
Consumer spending, on the other hand, has “not changed that much” and, should the US fall off the fiscal cliff, would be impacted more than businesses.
As for China, panellists and delegates agreed that the country would most likely reach its 7.5% GDP growth target for 2013.
Kirstein said: “To understand growth in China, you have to see this is a different political system – they can decide what the growth will be.”
Hensman agreed, saying: “GDP statistics we get to see from China do not really mean that much, as they are made up.”
He pointed out that regional and quarterly figures did not match up with the annual overall figure.
He added that the alleged GDP growth in China was not generating investment return, as A shares had returned approximately 0% over the last decade.
“In China,” Hensman added, “we are seeing a huge wave of capital inflow, too low interest and the creation of a desire to invest in property. But this misallocation concerns us, and there are better areas to invest than directly in China.”