Eurozone: Can investors benefit from the ‘Greek’ tragedy?

11th May 2011

This is despite increasingly dire news from some countries, with news from Athens suggesting the Greek government is about to seek a fresh EU bailout totalling £53bn to prevent financial collapse.

Greece was granted a £100bn bailout last year, but is still drowning in debts thought to total more than £300billion, reported the Daily Mail.

In his blog, economist Shaun Richards suggests that a debt restructuring would help. Commenting on the post, Mindful Money community member James Wright says: "So if they had decided to restructure Greek, Irish and Portuguese debt a year ago only British, French and German taxpayers would end paying for it (assuming their governments wouldn't let their banks fall) Now a year later all Eurozone taxpayers will be picking up the tab. Heh, French, German and especially British taxpayers must be pleased about this."

Barncactus says: "I know this is obvious, but Greece should never have been allowed into the Euro (or the EU) with such attitudes prevailing. As usual, the UK and other 'rule abiders' are paying the price for the sharks of this world."

Last month, Portugal became the latest country to seek a multi billion-euro bailout from the European Central Bank, and Spain is anticipated by many to be another casualty.

Yet there are many countries in the Eurozone, and a widening gulf between them. In one camp lie countries that are recovering strongly or have firm measures in place to sort out their public finances, such as Germany, Sweden, the Netherlands and Britain.

In the other group sit Portugal, Italy, Ireland, Greece and Spain – the so-called "PIIGS" – struggling with sovereign debt.

However, reports last month in The Telegraph and and The Sunday Times speak of opportunities for investors in the region.

With some European equity valuations at historically low levels, it is possible to buy into some world class companies at attractive valuations.  

And the problems in the region primarily concern sovereign debt – but if you invest in a European fund you are buying equities listed on a stock market – not government debt.

Equities are not automatically correlated to the state of the country where they are listed, but rather are affected by the fortunes of industry and where they trade.

Nicholas Dowell, manager of HSBC European Growth: "The Europe corporate sector remains in good shape with modest increases in sales and rising cash flows.

Many companies have increased dividends, reduced debt or are investing in developing their businesses.

We expect that returns for equity owners to continue to be satisfactory in 2011 with continued sales growth and cash flow gains from operational gearing."

Investors can benefit through a fund from the situation in Northern Europe, above all Germany.

In this country gross domestic product (GDP) growth was stronger than expected last year, while unemployment remains low.

Both Germany and Sweden have robust consumer environments. Multi-nationals and exporters, with Sweden particularly well represented on the German market, are benefiting from the weak euro currency.

In addition, many European-quoted companies make significant proportions of their earnings outside Europe, including the fast-growing emerging markets.

However, investors should still proceed with caution.

sovereign debt problems in the PIIGs intensifying, then while listed companies might be doing well, negative investor sentiment could cause further stock market shocks. In the short term investors may face increased volatility in markets.

Any weakness in the euro may well impact on performance. Sovereign debt problems could cause devaluation of the euro, which has been weak but held up against Greece's woes. While this would boost continental exporters, for UK investors translating profits into sterling, a weaker euro detracts from returns.

If you invest in Europe funds you should have at least a medium-term investment outlook, and a medium to high risk appetite.

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