Guy de Blonay: Euro nears its defining moment
From Macro News Nov 23 2011 BY: Esther Armstrong
, Senior Reporter
, Portfolio Adviser
We are living the last few weeks of the euro as we know it, according to Guy de Blonay fund manager of the Jupiter Financial Opportunities Fund, who predicts December's anniversary of the Maastricht Treaty to be a defining date in the eurozone debt crisis.
On the 12 December, when the treaty that sowed the seeds of the European Monetary Union celebrates its 20th anniversary, De Blonay said he would be paying close attention to the speeches of European policymakers.
"The mess we are in just now is pretty frightening," he admitted, "and one cannot really control anything anymore."
For this reason, he is holding out for two key signals before he tries to call the bottom of the market and re-invest in European banks.
Firstly, a signal that Europe is moving closer to fiscal union, and secondly, an expansion of the ECB's mandate to become lender of the last resort.
If the ECB were to guarantee European bonds in the way the Bank of England and Federal Reserve do their respective sovereign debt, then this would provide "the biggest opportunity in the financial sector by far" De Blonay added.
On the other hand, if this cannot be done, then "all bets are off and Europe will go towards the nationalisation of its banking sector".
US banks best bet
De Blonay agrees with contrarian hedge fund manager Crispin Odey, who argued recently US banks have done a lot more to improve their balance sheets and get rid of bad debts than their European counterparts and thus represent a better investment opportunity.
But De Blonay said none of this matters if the European sovereign debt is allowed to continue and the euro fail, because the exposure of European banks to sovereign debt and of US banks to European banks will mean they all end up in the mire together.
"Europeans hold the key for share price performance on a global basis," he explained. So while the whole financial sector is very cheap and on a regional basis some banks have done more than others to improve, he is not keen to hold any European banks until the two previously mentioned signals occur. If and when they do, De Blonay sees a 30-40% rally in European bank stocks.
For the meantime, however, his fund is positioned defensively, with 5% to 10% in cash and no holdings of European banks.
He is holding some Singaporean and Malaysian banks, although he is cautious that emerging market stocks have yet to show any real signs of decoupling from developed markets, and also credit card companies and insurance companies with high yields.
At current levels he sees BNP Paribas and Deutsche Bank as very attractive opportunities if the bear market breaks following a restoration of confidence in the eurozone.