Political risk is taking center stage for global money managers as they consider their stance on Europe, offsetting the potentially economy-boosting effects of a new quantitative easing program for the eurozone.
While some money managers say they are overweight Europe, thanks to an encouraging growth story, they have had to retain some caution because of uncertainty caused by politics.
Part of the threat is the rise of nationalistic political parties, as evidenced in the triumph of Greece's Syriza party, the Coalition of the Radical Left, in late January. With the rise of the right-wing U.K. Independence Party and its potential place in that country's politics come the May general election, plus the popularity of left-wing Podemos in Spain — which is due an election at the end of the year — that concern is very real.
“This is what could break the eurozone,” said Serge Pizem, Paris-based global head of multiasset at AXA Investment Managers. “It will be a political decision, not an economic shock — but a major country that says "I'm out.'”
Money managers have an eye on the nationalistic Syriza, known as an anti-austerity party, and its efforts to renegotiate Greece's country's e240 billion ($274.1 billion) bailout. The country's new finance minister, Yanis Varoufakis, has visited European economic powerhouses, including London, Paris and Rome.
The political and economical uncertainty that money managers are feeling was echoed by George Osborne, U.K. chancellor of the exchequer. Following his meeting with Mr. Varoufakis in London, Mr. Osborne said: “It is clear that this standoff between Greece and the eurozone is the greatest risk to the global economy.”
The increased political risk comes at what should be the time for Europe to step into the spotlight. Global money managers highlighted in interviews positive earnings growth for the eurozone, the continued weakening of the euro and the oil price collapse as boosts for the Europe story.
But the biggest positive came in the shape of an announcement by Mario Draghi, president of the European Central Bank, who said Jan. 22 that the ECB would be implementing a e60 billion per month bond-buying program, starting in March. He said this will run until September 2016, or until inflation is brought up to target for the eurozone, around 2%.