Krisen i Eurozonen in i slutfasen

WHAT ARE YOUR VIEWS ON THE EUROZONE DEBT CRISIS?
A lot of issues are now coming to the boil in the eurozone. It is now evident that the problems in the periphery are increasingly beginning to impact the core. The fact that sovereign bond yields have moved up inBelgium,AustriaandFranceis a worrying development that will ultimately put more pressure on the ECB’s bond purchase programme. We have already seen considerable purchases to support the peripheral nations; these purchases are draining reserves from the wholesale inter-bank lending market. This, in turn, has deleterious consequences for the wider real economy via reductions in bank lending and introduces the prospect of a second credit crunch.

So far, the ECB has been buying bonds on a sterilized basis using its balance sheet to fund purchases, meaning there is no increase in the money supply. With the need to support an enlarged group of sovereigns, the ECB may be forced to consider increasing the money supply to allow it to make unsterilized purchases of bonds. This policy change to quantitative easing has significant political barriers to overcome, however, principally in the form of German opposition.

The theme that has been driving bond markets in 2011 has been the reappraisal and re-pricing of peripheral sovereign bond debt. As we move into 2012, I think investors need to keep a close eye on the bond yields of Belgium, Austria and France. In 2012, the theme driving markets may well be the reappraisal of core, AAA rated sovereign debt. We have started to see the beginnings of this process and the markets are ahead of the rating agencies once again.

ARE WE ENTERING INTO A FINAL PHASE OF THE CRISIS?
Given we are talking about AAA sovereign nations now becoming involved, this has to be the final phase of the crisis, simply because there is nowhere else for contagion to spread. The wave of deleveraging, and the reassessment of risk that accompanies it, will have washed right through our financial economy. While 2012 is likely to be a troubled year, the attendant volatility that we see in financial markets should also mark the last down-leg of this crisis. The speed at which the crisis has moved from Italy to Spain and now core Europe has been alarming, but it also suggests a crescendo. As I alluded to before, the evolution of the crisis path now suggests a tipping point at which quantitative easing by the ECB becomes palatable to Germany as the only option that avoids a eurozone break up. The path between the inconceivable and the inevitable has now become very short.

HOW SHOULD INVESTORS BE POSITIONING THEMSELVES?
Clearly, the cautious stance that we have been taking in our multi-asset funds continues to be warranted. Within equities, investors should focus on high-quality, defensive companies with stable and reliable earnings streams, which pay high and sustainable dividends. InEurope, dividend yields are considerably in excess of their 15-year average and there are a number of equity funds which are targeted towards this particular income-yielding section of the market; the income offers a measure of protection to investors against further market volatility. These companies are typically large, robust household names like Unilever, which may well prove to be a relatively safe place for many investors to park some of their cash, when you consider the stresses that the banking system remains under.  

Lastly, in a geographic sense, let me say that the long-case for emerging markets is intact and I very much believe we are in a ‘two-speed world’ in economic growth terms. In the short-term, however, we know from experience that when risk sentiment deteriorates, equities are treated in an indiscriminate fashion and sold off en masse. While these markets do not offer near-term respite from the problems in the eurozone as equity correlations are likely to converge once again when volatility becomes heightened. However, when you consider their superior fundamental economic ability to recover, and the likely speed at which they can recover from a crisis centred on Europe, and the fact that their issues are cyclical in nature rather than structural, then the case for investment in emerging markets is robust on a medium to long-term view. I think investors will certainly want to be exposed to emerging markets as we emerge from this crisis.

This document is for investment professionals only and should not be relied upon by private investors. It must not be reproduced or circulated without prior permission. This communication is not directed at, and must not be acted upon by persons inside the United States and is otherwise only directed at persons residing in jurisdictions where the relevant funds are authorised for distribution or where no such authorisation is required. Fidelity/ Fidelity International means FIL Limited, and its subsidiary companies.  Unless otherwise stated, all views are those of the Fidelity organisation.  Investors should note that the views expressed may no longer be current and may have already been acted upon by Fidelity.  The research and analysis used in this material is gathered by Fidelity for its use as an Investment Manager and may have already been acted upon for its own purposes. Reference in this document to specific securities should not be construed as a recommendation to buy or sell these securities, but is included for the purposes of illustration only. Fidelity only offers information on its own products and services and does not provide investment advice based on individual circumstances.  Fidelity, Fidelity Worldwide Investment and the Fidelity Worldwide Investment and F symbol are trademarks of FIL Limited. Past performance is not a reliable indicator of future results. The value of investments and the income from them can go down as well as up and investors may not get back the amount invested. Fidelity’s legal representative in Switzerland is BNP Paribas Securities Services, Paris, succursale de Zurich, Selnaustrasse 16, 8002 Zurich. Paying agent for Switzerland is BNP Paribas Securities Services, Paris, succursale de Zurich, Selnaustrasse 16, 8002 Zurich. Malta: Growth Investments Limited is licensed by the MFSA. Fidelity Funds is promoted in Malta by Growth Investments Ltd in terms of the EU UCITS Directive and Legal Notices 207 ad 309 of 2004.  The Fund is regulated in Luxembourg by the Commission de Surveillance du Secteur Financier.  Issued by FIL Investments International (registered in England and Wales), authorised and regulated in the UK by the Financial Services Authority. SSO4656/1112