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A Grexit is unavoidable

The Briton made his comments at Expert Investor France, held in Paris last week. According to Norris (pictured right), Greece’s creditors had put forward “quite reasonable proposals” to Greece, by pushing back repayments. “But the problem is [that] the Greek government has come back and said ‘we’re not going to do any reform because we are all communists.’”

Without more privatisation and reforming their pension system and labour laws, “Greece will become some kind of permanent charity case relying on hand-outs from other European governments forever,” said Norris. “That isn’t a sustainable position for any country in the eurozone. So it would be better if they leave the euro because that makes the rest of the eurozone more credible,” he concluded. Norris conceded a Grexit would push markets down by 10% to 15%. “But that would take us back only to the start of the year, and in the longer term it would be a positive,” he stressed.



Tsipras: Setting the right priorities

 

 

Norris wasn’t the only one in the room who believes a Grexit is imminent. A poll showed that 38% of the delegates believe that Greece will leave the eurozone, slightly more than the European average. One of these Greece-sceptics is Alexandre Théry, a fund-of-fund manager for Auxense Gestion in Paris. “I think a Grexit is not an ‘if-event’, but a ‘when-event’.” Though Théry is convinced about a Grexit, he is not positioning his portfolio accordingly. “You are always wrong if you try to time such an event, so we have to be modest,” said the Parisian.

Mastering volatility

The two absolute return fund managers presenting at the event have already anticipated on the volatility which would follow a Grexit. “If there was a Grexit, it’s likely that the ECB would step in to reduce the risks. But there would be unforeseen effects that are hard to predict,” said William Martinez of Standard Life’s GARS fund. “In terms of protecting a portfolio against this type of scenarios, going long on the dollar and shorting the euro can provide an effective hedge.”

The risk of a Grexit has also prompted Raphaelle Moysan (pictured right), manager of the Aviva Investors Multi-Strategy Target Return Fund, to short the euro. To profit from a rise in volatility, the fund is also engaging in volatility derivatives. “If volatility rises, it will rise most in the markets which are most vulnerable. In this context we are now pinning Korean equities, which have a relatively high volatility, against US equities, which are more defensive,” she said. “We are long on volatility in the former, and short in volatility in the latter.”

Click here to see a slideshow of photos taken during Expert Investor France.


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