The vast number of major decisions scheduled to take place in September on the future of the eurozone could bring the market’s recent progress back down to earth with a bump, according to SWIP’s Luke Hickmore.

Hickmore (pictured), who heads up the Scottish Widows Corporate Bond and High Reserve funds, admits to being an optimist and says he likes to surround himself with pessimists to give him some balance.

However, his positivity is tempered by the prospect of major upheaval in the eurozone; he believes that by the end of next month everyone will have a much clearer idea about the future direction of the region, but says this future may not be to many people’s liking.

"Whereas I’m quite happy to ride the market in August, in September you’ve got the vote on the ESM on the 12th. We’re probably going to be OK, but there’s risk there," he explained. 

"We’ve got the Dutch elections, I think that will be quite interesting to watch in terms of the political atmosphere." 

"We’ve got the troika report on Greece at the beginning of September and you’ve got the Italian budget negotiations kicking off and there’s a risk – which, OK it’s an outside risk – that [Mario] Monti faces a vote of no confidence because they don’t want to take any more austerity, in a particularly febrile environment in Italian politics at the moment anyway." 

"That will mean a lot of issues about the integrity of the big picture of Europe. I’m happy to be constructive during August, but at the moment, I’m not particularly convinced about September." 

Hickmore points to analyst Martin McCudden as one of the pessimists he has surrounded himself with. Despite this label, McCudden has been encouraged by recent announcements from ECB president Mario Draghi.

"It’s difficult to have a 100 per cent conviction with all the variables around at the moment," he said. 

"But if you take a step back and look at [Draghi’s “whatever it takes” speech], there were a number of incremental positives."

"He introduced a set of options that people are looking for – the banking licence, the ESM – that have been rolled out from a legal perspective. I think it’s positive that he has set conditions and shown a willingness to get involved, depending on what he gets from the countries." 

However, McCudden believes the fundamental weaknesses in the make-up of the eurozone means it will ultimately fail.

"Draghi said things will have to get worse before they get better, before Greece can access the bailout programme and the ECB will step in," McCudden continued. "And you can’t really see Italy being too far behind." 

"I think that stresses within the eurozone have been tackled but I think that even if you do end up going through the funding programme, the fundamental problems will still be there, because of a lack of willingness on Germany’s part to address them." 

"I don’t think the structural reform has gone far enough and it has been watered down through successive stages. If you continue to go down this route, you’re not going to have any positive economic surprises, you’re going to continue to impair growth and squeeze the domestic populations."

Hickmore agrees with McCudden about the disadvantages of harsh austerity measures and says their indirect impact on what are typically the most resilient areas of the market is the clearest sign yet that they are counterproductive.

"Something that is really important at the moment, something that we’ve been discussing increasingly over the past week, is the effect on corporates," he explained. 

"You are starting to see some of the global leaders, pure consumer-led companies like Procter & Gamble and Unilever, talking about Europe as a problem area for them." 

"Now these are staple consumer goods, these are not massive discretionary items. Also utilities companies are talking about a big drop-off in electricity usage." 

"Without trying to get hairy scary with it, the signs from corporates are that growth is a lot smaller than GDP numbers suggest. The gap needs to get squared somewhere and at the moment it feels like GDP numbers have got room to come down in Europe and in the periphery in particular."

Performance of manager vs peer group over 5-yrs



Source: FE Analytics

According to FE Analytics, Hickmore has returned 10.4 per cent over the past five years compared with 16.86 per cent from his peer group composite.