Bloomberg News

Dexia Cuts Bullish Stock Bet as Europe Policy Initiative Weakens

February 17, 2012

Feb. 16 (Bloomberg) -- Dexia Asset Management tempered its bullish bet on equities, doubling its cash holdings, as it sees less scope for positive economic data and European leaders struggle to provide new measures to stem the debt crisis.

The money manager that has 80.5 billion euros ($105 billion) in client assets added to cash holdings by selling positions in Arkema SA, Vallourec SA and Ryanair Holdings Plc. Its high conviction fund now has 20 percent invested in cash, up from 10 percent at the start of February, while its balanced funds remain slightly overweight equities.

Pressure on euro-zone countries to contain the debt crisis and stimulate growth has intensified, clouding the outlook, even as equity markets rallied and sovereign bond yields declined, according to Frederic Buzare, Dexia’s head of equities.

The Stoxx Europe 600 Index has surged 8 percent this year as better-than-estimated U.S. economic data helped restore more than $4 trillion to global equity markets. The 23 percent rally from last year’s lowest level to yesterday has pushed the price- earnings ratio on the gauge from 9.5 times estimated profits in September to a multiple of 10.9, according to data compiled by Bloomberg.

“We’ve taken some chips off the table and become a little more defensive in the last week,” said Buzare in a recent phone interview from Brussels. “I’m not sure the macro picture will improve from the current level. The big hangover -- Greece -- is not solved. There are plenty of reasons to start becoming cautious.”

Growth Problem

European Central Bank President Mario Draghi has pointed to signs of stabilization in the euro-area economy and said the ECB averted a credit crunch with its three-year loans to lenders in December. The central bank will offer a second round of financing, known as LTRO, at the end of this month.

“It reduced dramatically the tail risk,” said Dexia’s Buzare. “It has not solved the lack of growth in several European countries. The second LTRO won’t be a surprise.”

The money manager also sold its RWE AG shares. The German utility has rallied 18 percent this year. This was in addition to decreasing holdings of Arkema, the French chemical maker, and Vallourec SA, the steel-pipe producer. Buzare didn’t say how large the stakes sold were.

Euro-area finance ministers may postpone a full aid package until Greek elections in April after they canceled a meeting yesterday because they aren’t convinced the nation will stick to austerity pledges. Creditor countries are seeking more control over how future aid is spent as Greece faces possible default over a bond payment due on March 20. Policy makers will discuss a second bailout on Feb. 20, Luxembourg Prime Minister Jean- Claude Juncker said.

“The momentum is weakening in terms of policy initiatives,” said Buzare. “The market pressure may come back to force new pressure on that front.”

--Editors: Alan Soughley, Andrew Rummer

To contact the reporter on this story: Adam Haigh in London at

To contact the editor responsible for this story: Andrew Rummer at

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