Conference Q&A: ECB Policy Is Reckless And Exploitative

March 12, 2015

So far, large asset owners have simply taken refuge in the relatively safe havens of euro-denominated German government bonds and Swiss-franc denominated Swiss government bonds, pushing their yields into negative territory. Meanwhile, French and Italian government bond yield spreads over Germany’s bunds have also narrowed in the past four months, thus producing the “policy outcome” Draghi has been targeting.

It remains to be seen whether this reckless policy will truly help stop the slow economic decline of countries such as Italy and France. Vain speeches on “pan-European federalism” and short-termist monetary manipulations cannot replace profound structural reforms and exchange-rate flexibility at national level. Where are the opportunities in emerging and frontier markets?

Firzli: The opportunities are everywhere really, depending on one’s investment horizon and risk appetite. Whether invested in fixed income or equity investments, country risk always comes first. In Latin America and the Caribbean, nations such as Uruguay, Panama, Columbia, Costa Rica and the Bahamas are quite attractive both in terms of bonds and stock markets. Likewise for the Philippines, Sri Lanka and Vietnam in Asia-Pacific.  Mid-size African jurisdictions such as Morocco, Tunisia, the Ivory Coast, Senegal and Kenya are probably more risky, but can potentially offer interesting returns for long-term investors. How do you currently view alternatives e.g. private equity and hedge funds?

Firzli: We believe that large asset owners will probably keep on increasing their allocation to "alpha-seeking" tactical asset allocation funds, using hedge-like strategies and, more importantly, non-listed assets such as private equity, infrastructure and real estate. These formerly peripheral asset classes shouldn’t be called alternative investments anymore: they’re now an integral part of the investment strategy.


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