Rice: Why policymakers will not let Greece exit the euro

Cazenove’s European fund manager Chris Rice has said he expects policymakers across Europe to stand firm and keep the eurozone intact despite growing expectations parts of it will break away.

Rice, manager of Cazenove’s £869m European fund and one of the top equity managers in the sector over the long term, said the present batch of politicians in Europe will not want to be the ones who let the eurozone fall apart on their watch.

As a result, he is expecting a resolution to the current crisis, while conceding there will likely be further pain for investors in the short term. “I find it hard to believe this generation of politicians is the one to pull the rug out from under the euro,” he said.

Rice added said policy is driving the eurozone to either a break-up or the creation of a eurobond, and he ultimately expects a change in stance to accommodate Greece and maintain the region.

“We need policy resolution in Europe – and we need the Germans to step up to the plate,” he said. Rice has begun to add to more risky sectors in light of this view on an eventual resolution.

While not bullish on equities yet – despite falls of around 25% across equity markets in the region – he said with P/E ratios now near all time lows, running at 7.7 times, he is switching away from highly priced “secure growth” stocks such as food and beverage producers, moving towards much cheaper large income stocks.

“I am less bearish than I was three or four years ago now. The price of safety is getting very high now and we fear the dispersion between different sectors is getting too extreme to ignore the value signal,” he said.

“So we are starting to narrow the gap between secure growth stocks and extreme value which includes the banks and the insurers.”

Rice has added Deustche Bank to the portfolio as part of this move, noting its CDS spread is much lower than other banks in Europe, despite being similarly priced to financials such as UniCredit.

The contrarian investor said it is time to take advantage of fear in the market by moving away from overvalued defensive holdings.

“Secure growth companies now look completely unattractive as I am not entirely convinced they can grow earnings so much more than large-cap dividend payers such as pharmaceuticals, telecoms and large oil companies,” he said.