Since the bailout was announced on May 10, investors have lost faith in the single currency and the Euro has fallen more than 4.5 per cent from above $1.30 to a four year low of $1.2224 this morning. Experts fear the bailout will not solve the deep debt problems of the Southern Euro nations, which could lead to contagion amongst the more affluent Northern countries.
Okasan Securities Co. bond and currency dealer Tsutomu Soma told Bloomberg: “As markets began to find faults with the loan package, it’s become clear that this will not solve the roots of the crisis. Investors are finding fewer reasons to buy the Euro.”
So what is the future of the single currency and what affects will a continued devaluing have on UK markets?
According to Enduring Investments chartered financial analyst Michael Ashton, the Euro has become the latest financial bubble to burst – and he thinks it could continue to slide by another 40 per cent against the US Dollar.
Ashton says: “The Euro appreciated some 60 per cent from 2001 to 2008, but the currency is associated with a bloc of countries who collectively have a sketchy work ethic, even-more-intrusive government, and awesome demographic challenges.
“The currency rose mainly because it became fashionable to believe in the Euro and, partly I am sure, because it did create a plausible alternative reserve currency and that fact enticed some international diversification. Those effects are over, the bloom is off the rose, and international suspicion of the value of European Union is rising.”
Fair FX head of FX trading Rishi Patel says that the fundamental issue is that the Euro is a monetary union without a fiscal union. “The individual states cannot take full control of the currency,” he says. “What has happened with Greece goes against the whole point of the union – it was created for stability, not to act as a bailout bank for countries that can’t finance themselves.
What has happened with Greece goes against the whole point of the Eurozone – it was created for stability, not to act as a bailout bank for countries that can’t finance themselves.
Rishi Patel, Fair FX
“Until the fiscal and macro-economic imbalances are solved by the member states, the currency will continue to fall. We are within touching distance of 2008 lows and we cannot rule out a fall to $1.15.”
But then there are benefits to a falling Euro from an investor perspective, according to Merrill Lynch Wealth Management portfolio strategist Johan Jooste. He says German, French and Benelux exporters are benefiting substantially from a lower currency: “These companies were already competitive in world markets for capital goods, now they are even more so,” he says. “They have built up solid exposure to emerging markets that continue to grow strongly.”
Barry Norris, founding partner of Ignis Argonaut Capital Partners also spies opportunity. He says his investments in Europe have a “myriad of growth and income opportunities” as he seeks out firms “for whom the weak euro will be highly beneficial”.
He says: “The vast majority of top European companies generate their growth outside of the Continent. Europe’s exporters warmly welcome any devaluation. A strengthening US dollar and a weakening Euro will therefore lead to significant improvement in profit numbers for European exporters selling in dollars even if sales remain the same.
For UK investors to ignore ’core’ Europe is short-sighted – it seems to offer some of the strongest opportunities for medium to long-term growth
Barry Norris, Ignis
“For UK investors to ignore Europe is short-sighted. Weighing up the opportunities across all asset classes, Europe, or more specifically ‘core’ Europe, currently seems to offer some of the strongest opportunities for medium to long-term growth.”