Bullish Barclays says to buy Portuguese debt
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.”
Greece’s interest burden, post-PSI, will remain huge
It seems Greece has finally reached a deal on austerity measures needed for a bailout. But what about PSI?
(ECB President Mario Draghi just said he heard it was close to a deal. It’s been close for a few weeks though…)
JP Morgan says Greek PSI is hardly going to change the heavy interest burden on the country and the issue of default will inevitably come up.
First of all, Greece’s interest payments are huge.
Greece paid 15.5 bln euros in net interest payments in 2011, 17% of total general revenues. This is the highest among all OECD countries and more than 3 times the OECD average of 5%. It is also more than double the 8% average for other peripheral countries in the euro zone.
The U.S. bank estimates the Greek PSI is going to capture 205bln euros of private bond holders (and perhaps a further 55bln euros if the ECB participated).
Of this 260 bln euros, around 85 bln or a third are held domestically, by Greek social security funds, domestic banks to be largely nationalised post PSI, and the Greek central bank.
Greek ars great but if they dont implement the reforms specially their own pensions funds that are tied to their own greek bonds, their not helping themselves in an already unsustainable situation. they should show some cooperation. If not It may be painful to extract a teeht but if necessary it may be better than keep constant pain within the E¸U and perhaps teh world. Does an economi as large as Argentina can hurt the world if isolated ?
