Greek default could spur markets, says Becket

Global markets could benefit from an orderly Greek default, says Tom Becket, chief investment officer at PSigma Investment Management.

The fund manager says that the recent stabilisation of markets following more comprehensive efforts from policy makers in the eurozone is a sign that what investors need right now is some certainty.

“For our part, we expect systemic recapitalisation of the European banking system and a huge buying programme of European bonds,” he says. “Maybe it won’t be the ‘bazooka’ that David Cameron has called for in recent days, but it should be enough to restore some semblance of calm and confidence to Europe, if only temporarily.”

He added: “At the moment the market is infatuated with a Greek default and this is the fault of dallying and indecisive politicians. Our view is that they should allow Greece a huge debt forgiveness of about half of its debt, allow the country to rebuild and try to isolate the problems in the wider banking system. Perversely we think a Greek default might actually be a positive spur for markets because at least then the lingering and boring uncertainty will have gone.”

For Becket, it is a lack of confidence which is at the heart of the volatility being experienced in financial markets and not fundamental weakness in companies. Though the risks have increased, he thinks that a double-dip recession will be avoided.

“It is not just Europe and its troubled banks that have hit sentiment hard, but also fears over a global recession and, most recently, a hard landing in China,” he explains. “With regards to global economic data, we would be hard pressed to find examples of rampant global growth. However, on the flip side, it is also hard to find many examples of the world crashing in to a full-blown recession.”

Becket, manager of the Psigma Balanced Managed Fund of Funds, is taking steps to position his portfolio so that it can benefit when the markets return to growth.

“Clearly with the pressures existent in Europe and other parts of the world it is not a time to be gung-ho in our investment strategies,” he says. “However, if any of the problems start to dissipate, or the world is not in so bad a state as many are suggesting, then financial markets are presenting some excellent opportunities that we are trying to take advantage of.”

According to data from FE Analytics the PSigma Balanced Managed Fund of Funds portfolio, which has recently celebrated its third anniversary, has returned 20.71 per cent since it launched in September 2008, nearly twice the sector average which returned 10.76 per cent.

“Admittedly, one might have to stomach wild volatility and periods of weak performance, but the potential rewards on offer from certain areas of credit and equity markets are very attractive.”

Becket added: “History has taught us that the best time to buy quality companies is when markets start to move into a state of panic. Strong and attractive businesses can be bought on the cheap and now is potentially such a time. It is important as long term investors that we sift through the rubble created by the recent market crash and try to exploit opportunities in the volatility.”