There was no shortage of conversation-starters in Davos yesterday – "quantitative easing" was the magic phrase on everyone's lips as they awaited news from Frankfurt. While some of the world's biggest economic brains, such as former United States treasury secretary Larry Summers and Bridgewater Associates founder Ray Dalio, were happy to debate the pros and cons of quantitative easing ahead of the announcement, those from the political world were more circumspect.
European Union economics chief Pierre Moscovici was doing his best to keep out of the limelight yesterday morning , while Italian finance minister Pier Padoan was spotted entering a Davos hotel hidden under a peaked woollen cap.
One senior figure from the investment world who stopped to share his thoughts with The Irish Times was Scott Minerd, chief investment officer of Guggenheim Partners. The US asset management fund has about $200 billion assets under management, and a presence in the IFSC, where it employs about 15 staff.
Sovereign debt upside
Before settling in to a chat on the ins and outs of the euro-zone investment story, Minerd’s pal, ex-Barclays boss
Bob Diamond
, whizzed by for a brief catch-up. With dinner plans confirmed, Minerd set out his thoughts: “I don’t think there’s much upside left in sovereign debt in
Europe
. You’re not really being compensated for any of the risks, whether its default risk or inflation risk or anything else. But I do see a lot of opportunity in European equities.”
One of the outcomes of US quantitative easing, he said, was that as investors drove up bond prices and returns got low, cash started going into equities. He sees Italian and Spanish equities as offering particularly good value. “It’s likely that these peripheral markets could rise substantially from where we are. By most valuation methodologies the peripheral nation’s equity markets] are relatively cheap. I think capital will flow there.”
Problem of scale
What about Ireland? Minerd said that while equities in
Ireland
were “very attractive”, the issue of scale is a problem for institutional investors.
“It’s not very easy being an institutional investor in the United States deploying capital into the Irish market without swamping it, “ he said. “When you’re managing a couple of hundred billion dollars and you decide you want to make a tactical allocation to Ireland, to get to a reasonable portfolio allocation we find we can’t deploy enough cash in the Irish market without essentially driving it up by ourselves. “
As for quantitative easing, he was cautious: “It may take a larger dose of QE than what the ECB is currently contemplating – meaning getting back to the €3 trillion may not be enough to get the effect that Draghi is looking for.”
But before he headed off to ring the Nasdaq bell at Davos, he added that quantitative easing would have a positive effect on Ireland in one way: by depreciating the euro further it will be positive for export- focused euro-zone countries such as Ireland.
