World Economy

Eurozone a Bigger Risk Than China

Eurozone a Bigger Risk Than ChinaEurozone a Bigger Risk Than China

Didier Saint Georges, a member of the investment committee at Carmignac, has told What Investment that while the Eurozone offers considerable potential for investor returns in 2016, the risks of further political and economic stability in the economic bloc are underappreciated by the market and so may be a greater threat than China.

Saint Georges commented that while, unlike in 2009, China does not have room to maneuver in terms of extra spending in 2016 to bolster the economy, the consumers of that country continue to be in robust form, and the trade surplus between China and the rest of the world has never been higher.

The trade surplus is the excess of capital China receives for the exports it sells to other countries versus the capital it sends abroad to buy imported goods.

Saint Georges takes the view that such a healthy trade surplus indicates that Chinese companies continue to enjoy strong market share, and may cushion the country towards a softer landing as its economy slows.

He remarked that ‘there are lots of risks’ to price in to Eurozone equities, despite many market participants being very positive on the economic bloc as a result of quantitative easing policies that, the perception is, will result in a rise in asset prices, while some Eurozone economies have been performing better.

But, Saint Georges commented, the slowdown in emerging markets, and the general lack of growth in the world may hinder the ability of Germany, a predominantly export economy, to continue to grow.

In addition, he cited political risks in a number of countries, including Spain, as being capable of adding instability to the region and denting the confidence of the markets. He asserted that these risks are presently appreciated by market participants fixated on China and the US.

Carmignac has, in aggregate, significantly reduced its equity exposure over the past year, selling hundreds of millions of shares, but turning his thoughts to where he believes equity investors can turn amid the current market chaos, he cited pharmaceuticals as an example of a ‘sector that can grow regardless of the wider economy’.