FT: Big European funds dump euro assets

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These are onetime events that tend to reverse after running their course.
Aka inventory liquidation

Big European funds dump euro assets

By David Oakley and Alice Ross

May 24 (FT) — Some of Europe’s biggest fund managers have confirmed they are dumping euro assets amid rising fears over a possible Greek exit from the eurozone and single currency turmoil.

The euro’s sudden fall this month caught many investors by surprise. Europe’s single currency has lost 5 per cent in the past three weeks after barely moving against the US dollar for much of the year. On Thursday, the euro hit a fresh 22-month low at $1.2514.

Amundi, Europe’s second-biggest private fund manager, and Threadneedle Investments, the big UK manager, have cut their exposure to the euro in recent days as frustration grows with political leaders’ efforts to resolve the crisis.

US-based Merk Investments, the currency specialists, has cut all of its euro holdings in its flagship fund this month.

“We sold our last euro on May 15,” said Axel Merk, chief investment officer. “We’re concerned about how dysfunctional the process is. No one is there to talk to in Greece.”

Amundi, which manages money for some of the continent’s biggest pension funds and companies, said the risk of the crisis spreading to the bigger economies of Spain and Italy was growing because policy makers had failed to convince investors it had built a sufficient firewall.

Other big fund managers fear the likelihood of a so-called “Grexit”, in the event of Athens leaving the euro, has risen sharply in the past week.

European leaders put off any decisions on shoring up the region’s banks at a late-night summit on Wednesday despite rising concerns that instability in Greece was undermining confidence in the eurozone’s financial sector. Citigroup says the euro could fall close to parity in the event of a disorderly exit.

Richard Batty, investment director at Standard Life Investments which has been underweight in European equities and bonds for the past two years, said: “This is a crisis that looks like worsening and that is why the euro has come under pressure.”

Neil Williams, chief economist at Hermes Fund Managers, which has reduced its exposure to European peripheral equities to close to zero, said: “There is a failure by the politicians to convince the markets they are tackling the problems in the eurozone.”

Trading desks at investment banks say that asset managers and pension funds in particular have been selling the euro in recent days.

Amundi, which was created through a merger of Crédit Agricole Asset Management and Société Générale Asset Management three years ago and has €659bn in assets under management, has switched some of its money out of euro-denominated bonds into dollar assets.

Eric Brard, global head of fixed income at Amundi, said: “Although we have reduced our exposure to the euro, a weaker euro could be good news for Europe and exporting companies in the region.”

He added: “Our baseline scenario is that the eurozone will not break up and Greece will remain in the monetary union. However, taking a pragmatic view, in recent weeks the market’s perception of risks of a eurozone break-up and Greece exiting have risen.”

Threadneedle, which has £73bn under management, has reduced its euro exposure through its absolute return fund in the belief the euro will fall further.

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6 Responses to FT: Big European funds dump euro assets

  1. walter says:

    Warren,
    In your proposal for a ‘BIG FAT GREEK EXIT” you describe that basically the only thing that is necessary is that the govt declares that from then on all payments to and from the govt will and shall be done in the new currency (let’s say Drachma).
    In Q&A you say that euro deposits of citizens will stay as they are.

    Many people however foresee that Greece will convert bank deposits in euros into drachme at a certain rate.
    After that the drachme is likely to drop and everybody that had euro deposits has a loss.
    Therefore they fear bank runs because people will try to have physical cash instead of deposits. In such a way they avoid the forced conversion at the initial rate.
    I assume you do not see any danger in this kind of bank run per se. Even though here is not just a deposit to be replaced by a loan from the cb, but cash on the asset side decreases by the size of the deposit decrease on the liability side.

    Your assumption that euro deposits will remain in tact is based on the MMT view that the new currency will get its value from taxation in it. The Greek govt however may think and decide differently about what is necessary to get their new drachma accepted. I think there are some examples where such forced conversion was done. (Argentina?, break up Czech-Slowakia?)

    This week UBS also came with a report where they say:
    “If a Greece leaves a monetary union, its bank deposits will have to be forcibly redenominated into the new national currency”. And then they continue with the bank runs etc

    How do you see the odds that the Greek govt will force conversion of euro deposits in case of an exit of Greece from the eurozone, so in contrast to what you say is needed?

    Reply

    MamMoTh Reply:

    @walter, I’d say about 99.999%

    Reply

    WARREN MOSLER Reply:

    Don’t know the odds
    Just how I’d do it

    Reply

  2. I dumpted my Euro assets two months ago.

    Reply

  3. Alexander says:

    “The euro’s sudden fall this month caught many investors by surprise.”

    Is that a joke?

    The banking cartel is now SHORT euro assets and have been all week so have now simply instructed the enforcers (known as asset managers) to dump investors (known as suckers) assets so that they can lock in huge profits.

    Reply

  4. y says:

    WHat do you think will happen to the Euro exchange rate value if Greece drops out?

    Reply

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