Mounting tensions over the situation in Greece and the potential for a default or exit from the eurozone are in part holding back institutions from investing in an otherwise positive story for Europe.
Executives at money management firms and asset owners also said they are keeping a close eye on day-to-day developments in the country, despite sources saying an exit by Greece from the monetary union — a so-called Grexit — is unlikely.
“We're monitoring the situation in Greece, and its effects on the eurozone, very carefully,” said Christopher J. Ailman, chief investment officer of the $191.2 billion California State Teachers' Retirement System, West Sacramento. “Overall, we think Europe is a potentially attractive market but the Greece crisis continues to be a major concern, as it has been for the past two years. It remains a factor in our decision to maintain a relatively light footprint in Europe, preferring a home-country bias for the portfolio.” Details on allocations were not available by press time.
J.P. Morgan Asset Management's Maria Paola Toschi, Milan-based global market strategist, said the firm thinks the case for investing in Europe and European equities is strong. However, “many investors are waiting to better understand what happens in Greece before deciding to increase their exposure. That is a drag on the process of reconsidering reinvestment in Europe,” she said.
A spokeswoman for Norges Bank Investment Management, manager of the 6.8 trillion Norwegian kroner ($894 billion) Government Pension Fund Global, Oslo, said the firm is “monitoring the situation in Greece.”
Sandeep Bhamra, London-based client adviser in J.P. Morgan Asset Management's endowments and foundations team for Europe, the Middle East and Africa, said clients “continue to monitor the situation, especially European investors.”
Money managers have had little or no exposure to Greece since its reclassification to emerging market status by index providers in 2013. With Greek government officials locked in negotiations with the country's European creditors over reforms, the Greek economy officially in recession following two successive quarters of GDP contraction, and a crowded pipeline of repayments to the International Monetary Fund and the European Central Bank over the summer, concern is increasing.
BNP Paribas Investment Partners has no exposure to Greece. “We do have some peripheral (Europe) exposure but that is more short-dated, and we take the view that the ECB should be able to contain any problems there,” said Colin Harte, London-based portfolio manager and strategist within the multiasset solutions team. “Most of our exposure is to higher quality European debt — we have been a bit more defensive there.”
“We have tended to shy away from direct investment in Greece for some time,” said Paul Griffiths, London-based chief investment officer, fixed income and multiasset solutions, at First State Investments International Ltd. “We are concerned about the knock-on effects of problems to the broader European, and global, story. The question is: Is the market, and are we (as investors) being complacent?”