“Investment Strategy”sets forth the different asset allocation choices which are implemented in BNP Paribas Asset Management's portfolios. The investment strategy derives from a running analysis of numerous factors (i.e. the general economic situation, earnings growth rates and financial ratios, assessment of market valuations, technical analysis).
Despite the 26 October summit and the announcement of measures designed to halt the crisis, the eurozone is still worrying and is the chief concern of markets. We do not think that the prerequisites for an end to this crisis have been met as yet. In our opinion, the situation could stabilise only when cases of insolvency have been identified and dealt with by the EMU (this includes Greece, but also, at least, Portugal).
Now, at present, these countries seem to have fallen into a vicious circle of recession, deficits and austerity policies: given the current deep recession, austerity is not reducing the deficits. The eurozone will therefore have to help them stimulate their economies and/or restructure their debt again in the future, despite the announcements at end October concerning Greece.
A second stabiliser would have to come from the establishment of a public debt buyer of last resort to help those countries that are technically solvent but faced with a liquidity problem. Since the ECB refuses to play this role (apart from temporary purchases) and some countries support it in this decision, the new EFSF will have to be set up in the coming weeks, to restore visibility to countries such as Italy whose financing costs have spiralled.
Lastly, we believe that longer-term it is important for Europe to plot a path toward closer economic integration, in order to establish systems of income transfers between countries which would make sharing the same currency acceptable to all. It is easy to see the political difficulty of this undertaking. In the medium and long term, we believe these transformations are possible and will enable a stabilisation of the zone, but the path is bound to remain difficult.
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