Friday 24 November 2017

How to profit from the eurozone debt crisis

Brave investors might consider what money can be made from the carnage in the eurozone.

Eurozone: there's money to be made among the ruins. Photo: AP
Eurozone: there's money to be made among the ruins. Photo: AP

Paul Farrow

IT is two years since Greece agreed to its first bail-out, yet the crisis that its debt burden triggered across Europe shows no sign of abating. If anything, the situation has worsened.

Markets hate uncertainty, and with a second Greek election scheduled for June 17, speculation on whether Greece will exit the euro or not will ensue.

But even staying put in the eurozone is likely to calm matters. After all, Greece is in its fifth year of recession and many economists believe that its austerity measures are driving its economy into a black hole. What's more, it is not just Greece with huge debt problems – the economies of Spain, Italy and Portugal are also in a desperate state.

It was famous contrarian investor John Maynard Keynes who famously said in his post-1930s Depression scribblings: "It is the one sphere of life and activity where victory, security and success is always to the minority and never to the majority. When you find anyone agreeing with you, change your mind."

In short, brave investors might be wondering whether any money can be made from the carnage.


Brewin Dolphin certainly reckons that blue-chip European exporters and overseas earners could benefit despite the turmoil on the Continent.

Take car manufacturer Daimler, for example. The private client investment manager cites its attraction for three reasons (although it admits that it is not an investment for the faint hearted).

Firstly, at the end of the year it will launch its new high margin S class and A and B class, which should be cheaper to make than their predecessors. Secondly, premium car sales in China continue to be extremely resilient – up 15pc in the first four months of 2012 with sales aligned to bigger, larger engines. The recovery in the US economy could also benefit Daimler trucks, it said.

Nestlé is another that could buck the trend given its long and consistent track record of delivering on its target. "Whilst by no means a small company, Nestlé has managed in the past ten years to consistently gain market share and shown its ability to enter fast growing categories by recently announcing it has reached an agreement to buy Pfizer Nutrition," said Nicla Di Palma, equity analyst at Brewin Dolphin. "Pernod-Ricard has also shown itself to be one of the strongest worldwide with very good pricing power and resilience (even growth) through economic downturns."

Peter Walls, a fund manager at Unicorn rates two European investment trusts, Jupiter European managed by Alex Darwell and Fidelity European Values managed by Sam Morse. "I have held these two funds for a while. Certainly Alex Darwell is a quality investment act and his trust is top of the tree in its sector. But I think that Sam Morse will prove to be a good manager and his trust offers probably offers better value at the moment."

If you believe that the euro is a basket case then Brian Dennehy, at Fundexpert, says that currency ETFs might be worth a, look."Our favourite has been ShortEuro/LongDollar, quite simply on the basis that the euro is a basket case, and in extremis people will buy the dollar."


European investors have been snapping up gold coins that commemorated the engagement of the Duke and Duchess of Cambridge because of the volatility – its price has risen by 70pc from £1,700 at issue to be worth around £3,000 today.

Alan Demby, of the Scoin Shop, which has stores in Westfield Shepherd's Bush, Westfield Stratford, and Bluewater, said that sales in its shops had increased by 45pc in the last two months, with European customers leading the sales enquiries.

Of course, gold has featured highly over the past few years, given its safe haven status but it will continue to be in demand while uncertainty abounds. World Gold Council figures show global demand for gold has increased 16pc in the past year. Contrarian investors might be tempted given that its price has fallen to below $1,600/oz from a high of $2,000 (check).

Evy Hambro, manager of the BlackRock Gold & General fund, remains positive. "The reasons for owning gold – as an alternative store of value, an alternative currency, a potential safeguard against inflation, a source of diversification – appear as relevant now as they did throughout much of 2011," he said recently. "Moreover, a negative real interest rate environment, such as the one most major economies are in and which looks set to persist, is typically an accommodative one for gold."

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