Gray: Europe to see further bailouts in 2011

Portugal will need a bailout in 2011, but the future of the eurozone will depend on the fate of Spain, Italy and Belgium, says MAM Funds' Martin Gray.

Gray, the manager of the £563m Miton Special Situations portfolio, has taken the fund's European exposure down to just 2.8% in the view the eurozone will remain troubled for some time to come.

"Portugal is likely to need some sort of bail-out in 2011, but the fate of Spain (and perhaps Italy and Belgium) will be the real test," he says.

He adds it seems "inexplicable" yields on German bunds have risen by around 75bp since the lows experienced last autumn. "A large current account surplus with little sign of inflation, should surely be sending the yield lower?

"The market, however, is being driven by concerns over how much Germany will have to stump up to rescue the rest of Europe."

Gray says German Chancellor Angela Merkel showed strong reluctance during the bail-out of Greece to set any sort of precedent.

Meanwhile, the European Central Bank has been trying to avoid following in the footsteps of the UK and the US by rolling out further QE measures.

Overall, 2010 was a good year for investors with all broad asset classes providing positive returns, continuing the trend set in the second half of 2009, he believes.

Stockpicking and micro asset selection continued to prove largely irrelevant and the mantra of ‘the greater the risk, the greater the return' was again the most popular approach.

"A strong finish to the year for risk assets has left the fund management industry in a confident frame of mind for 2011; always a worrying scenario for the non-consensual investor," he adds.