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Grexit won’t affect European equity positions, says Deutsche AWM CIO

Grexit won’t affect European equity positions, says Deutsche AWM CIO

Contagion from a possible Greek exit is likely to be limited, though the country has created huge uncertainty for global markets.

That’s according to Asoka Wöhrmann, chief investment officer at Deutsche Asset & Wealth Management.

‘The European Central Bank has done an unbelievable job to minimise the contagion risk to Spain, Italy, Portugal and other countries,’ Wöhrmann said at a briefing held in Singapore on the global markets outlook for the second half of 2015.

He said the Greek situation, especially the unexpected outcome of a referendum, has shown the country has isolated itself. ‘It is them saying: “We want to go out” and not Europe throwing Greece out, which is very important.’

Against such a backdrop, Wöhrmann said his equities team is looking for potential purchases around the world. ‘I think that can create an entry point for us. We’ve neutralised European equities in April and we’re now looking for an entry point.’

Rate hikes ready

In the US, Wöhrmann said his team has a strong conviction the Federal Reserve will announce rate hike in September. This is due to global liquidity continues growing and a situation of oversupply starting to surface, which will make interest rate hike a natural next step.

‘The rate hike would also have an impact on the global bond market, we expect to see rate hike in the bond market as well, but it wouldn’t be dramatic.’

In terms of global economic cycle, Wöhrmann explains global economies are still in the turtle cycle, which means major economies are on a growth path, but such growth / recovery has been very slow. ‘Turtles are moving slow but steady and they’re long-living animals.’

‘The markets are not overheating, which means in a low inflation environment. That’s causing a very accommodative stance in monetary policy in the world, but that also has a huge implication for global strategic asset allocations.’

EM exposure

Within the emerging markets, Sean Taylor, regional investment head APAC and head of emerging markets at the firm, said his team prefers North Asia to Southeast Asia.

‘On a regional basis, we still see Asia ex-Japan is trading cheaper than the emerging markets and lots of that has got to do with China. Our faith is really in China within the region,’ he said.

‘We’re interested in investment opportunities such as financials, insurance companies, consumption, tourism, healthcare and education,’ said Taylor, adding his team is looking for policy-driven growth areas.

In terms of the PBoC's interest rates cut last Saturday, Taylor said there has been a good run by equities and the Chinese government has, to an extent, created a correction.

‘We’re expecting more interest rate cuts and RRR cuts, but we won’t expect them to come together. We’re actually expecting the government to do it later on.’

Taylor also said his team is expecting the Chinese economy will still be in line with 6.8% in the second half of 2015 and it should maintain such growth rate in 2016. ‘We expect the government’s further rates cut to fit into a slightly better economy, which will be still in line with 6.8%.’

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