Aviva Investors, which manages the equivalent of $420 billion, says it is preparing for this weekend’s Greek elections by betting the euro will weaken and European stocks will decline.
The asset management business of London-based Aviva Plc has also taken a position that will benefit if the volatility of the euro against the dollar increases, according to a report from senior economists Shamik Dhar and Stewart Robertson. There is no certainty Greece will exit the euro, though there is likely to be market turbulence under all possible scenarios, they wrote.
“The Greek election in mid-June may prove to be a defining moment for Europe,” Dhar and Robertson said in a report. “At one extreme, we could see the break-up of the euro area. At the other, we may be heading toward a much closer fiscal and political union.”
In the short term, the economists say they are recommending a short position on European equities, the German DAX Index (DAX), the euro and being long euro-dollar volatility. A short position is a bet an asset will decline, while a long one is a bet it will increase.
In the medium term, defined as being between three and five years, Dhar and Robertson say they are “modestly risk on” and are recommending bets including that Japanese shares will rise.
As part of asset protection strategies, they economists say they recommend being short French government bonds and hedging euro assets into the U.K. pound.
Greece will hold a general election on June 17 after politicians failed to agree on a government after an inconclusive vote held on May 6.
The euro has declined 3.7 percent versus the dollar since then to trade at $1.2594 at 4:19 p.m. London time. The Stoxx Europe 600 (SXXP) Index of shares slid 4.5 percent in the same period.
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