But most fund buyers had remained constructive on the asset class for the longer term despite the Greek woes. And they now see their views reinforced by the lifeline given to Greece by the other eurozone countries. “We counted on some sort of deal, and have sustained our overweight to European equities due to the weaker euro and better valuations,” says Rishma Moennasing (pictured right), an equity fund analyst for Rabobank in the Netherlands.
Ivan Moen, head of investments for Dutch wealth manager Optimix, also in the Netherlands, strikes a similar tone. Just like Rabobank, the company had not been cutting its overweight to European equities in recent weeks. “We easily prefer European stocks now [to other equities], especially considering a solution to the Greek problem is in the making,” Moen says.
A great rotation?
Peripheral government bonds also got a modest boost yesterday, albeit a minimal one. Only Portuguese government bond yields came down meaningfully, but still only by 8 basis points. There is a possobility for these bonds to outperform, as the spread versus the Bund has increased markedly in the past two months, Moen concedes. “I see room for the spread to tighten now, but the risk reduction could equally well result in flows from Bunds to European equities. But after all, yields remain at historical lows. Only when peripheral bond yields get somewhere close to 4%, we would consider stepping back in.
While more positive about equities now, Karni continues to avoid government bonds. “We stay short or have zero exposure,” he says. “On the fixed income side, we are much more positive on the credit, even though the investment grade side suffered consistent losses in the last two months.
