Bullish Barclays says to buy Portuguese debt

March 22, 2012

Some bets are not for the faint-hearted. Risky punts are even less so following a sovereign debt crisis, one that has riddled European debt markets for two years. Barclays Capital, however, recommends a particularly unusual bet, one that your parents might baulk at.

It will be of little surprise that Barcap is bullish on the year, advising towards assets that will perform well in an environment of US-led global growth, easy monetary policy and tight oil supplies following reduced tail-risks in Europe curbed by cheap money from the European Central Bank.

Now that the rush of the addictive LTRO money is over and the dust is settling on central banks’ balance sheets, Barcap is brave enough to recommend an unlikely candidate and one of the recent targets of financial markets — Portugal.

Laurent Fransolet, Managing Director of Research at Barclays Capital told reporters at a Global Outlook briefing today:

“One of the top trades that we recommend in the global outlook is to be long on Portugal, which is a little bit of a roll of the dice. It is a fairly high risk, high return strategy. The sustainability of the debt, the fiscal consolidation, the long-term economic performance – these are still questions that remain on people’s minds for the foreseeable future.”

But the investment bank said it took the EU and the IMF at their word on implications following the Greek Private Sector Involvement (PSI) bailout deal.

“After the Greek PSI, we do believe the statement that Greece is unique and that anything will be done for Portugal for as long as needed if Portugal does deliver its side of the bargain — which has been the message by the European officials and by the IMF. In the very near term you probably have some opportunity for Portugal to outperform from what are fairly cheap levels.”

A return to the trough does come with a health warning, however.

“But it is very high risk and it is markets which are extremely illiquid, you are trading a couple of hundred million a week if you’re lucky.

It is not for your mum and dad.”

Portuguese 10 year bonds – Click to enlarge

(Writing by Philip Baillie)

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