Himsworth: Eurozone rally will be short-lived
The manager of the CF Eden UK Select Opportunities fund says that monetary policy alone is not enough to have a long-lasting positive impact on markets.
The ECB’s bond-buying scheme is not an adequate resolution to the eurozone crisis, according to FE Alpha manager Leigh Himsworth
, who believes the spike in equity markets will be short-lived.
Markets have reacted favourably to Mario Draghi’s bond-purchasing plans this afternoon, with the FTSE 100 up more than 2.11 per cent, and yields on Italian government debt touching five-month lows.
While Himsworth (pictured right)
, who heads up the CF Eden UK Select Opportunities
fund, thinks markets could go even higher in the near-term, he has played down long-term expectations of a significant bull run.
"I believe that monetary policy alone is not the answer, as with all of the stimulus so far there is no loan growth and so no growth in the money supply – i.e. there is no underlying demand," he said.
"For me, the only way this will happen is through fiscal stimulus and governments creating this demand. Of all the authorities in the world, I think Bernanke and the US get this but the others are some way behind."
Himsworth believes there are too many headwinds for a sustained equities surge and thinks markets will stay flat at best.
"In the very short-term it will help but it is not an underlying solution," he added.
Schroders’ European economist, Azad Zangana (pictured)
, also believes that though positive moves have been made, the real eurozone problems have yet to be sorted.
"In our view, the ECB has taken another step in the right direction, but is still some way away from totally removing the tail risks that investors fear," he explained.
"While the ECB has found the big gun in bond buying, it is missing the ammunition to make a long-lasting positive impact on markets."
Whilst today’s announcement has been welcomed by the markets, Nick Gartside
, international chief investment officer of fixed interest at JP Morgan Asset Management, was left disappointed.
He says too much emphasis has been placed on the bond-buying programme and not enough on underlying structural issues.
He commented: "Structural reform, political direction and leadership are areas that markets have had the luxury of ignoring recently."
"As the hysteria from today’s ECB pronouncement dies away, the focus will switch back to all those unresolved and open questions: will there be a euro-wide banking supervisor in place before year-end?"
"Which banks will be supervised and what will be the relationship between national supervisors and the ECB?"
Gartside also believes the recent ECB measures will create a period of volatility in the markets.
Mark Wright (pictured)
, who heads the CF Midas Balanced Growth
fund, believes Draghi’s announcement will create opportunities for investment across the markets, but warns investors not to get carried away.
"We think people are overplaying fears regarding the eurozone crisis," he said.
"At the moment, confidence is fragile in the market, but there is certainly opportunity out there for growth."
"When Draghi does what he says in relation to buying bonds from the peripheral countries, this defensive mind-set could change."
Although Wright has upped his exposure to risk assets, he prefers to hold companies that can grow their profits regardless of market conditions. He lists Vodafone as one firm he particularly likes.
"We are still predicting sluggish growth in UK markets and a low interest environment for years to come," he said.
"We like companies like Vodafone, which is still a good company with strong returns even though the UK market has struggled."