Leading Cazenove fund managers Peter Harvey and Chris Rice cited concerns over the banking sector as the European debt crisis deepens.
Speaking at the Cazenove conference in London, Cazenove head of credit Peter Harvey said: “We’re one recession away from a global financial crisis. Greece will default. Portugal and Ireland are equally likely to restructure. Spain will survive.”
Harvey, who runs the £714m strategic bond fund, explained that the strategy has changed in light of the economic situation.
He said: “The types of high-yield bonds we’re buying are different now. We’re buying short-dated bank bonds. These senior secured notes have a duration of less than 3 years, as we’re more defensive. We don’t think that banks, like HSBC, will go bankrupt in the 2 to 3 year horizon. That’s about the safest thing we can do right now.”
Cazenove head of pan-European equities Chris Rice said that French and German banks will have to recapitalise because they cannot cope with the burden of Greek sovereign debt on their balance sheets.
He said: “We have to normalise our extreme policy, because it cannot continue. We’re going to have to get out of the low interest rates we have been hooked into. I don’t see until the second half of this year that such things will pan out.”
Rice said that over the course of 2011 and 2012, the realisation will be that the single powerful performance of cyclicals over value stocks is over.