Bloomberg News

Market Lacks Hedge for Euro Breakup, Collins Says

October 19, 2012

(Corrects location of Berenberg Bank in last paragraph.)

Financial markets lack an instrument to hedge against a member of the 17-nation common currency leaving the euro, according to James Wood-Collins, chief executive officer of currency manager Record Plc. (REC)

“We are concerned about and believe in the possibility of a euro-zone exit,” Wood-Collins, of Windsor, England-based Record, said in a panel at the Bloomberg FX12 Summit hosted by Bloomberg Link in London today. “There is today no liquid market instrument with which investors can protect themselves against that specifically.”

Greek Prime Minister Antonis Samaras will seek an additional two years to meet budget-deficit targets at a meeting this week with his European Union counterparts, after three years of broken promises led to Greece becoming the only bailout nation to need a second rescue package. Spain is weighing aid from Europe’s bailout fund.

The euro rose above $1.30 for the first time in a week amid speculation that Spain is moving toward asking for financial assistance, reducing concern the region’s debt crisis is worsening.

While Europe’s common currency has strengthened because “it’s a natural reserve currency,” the euro “needs to depreciate itself fundamentally,” Adrian Lee, chief investment officer at currency manager Adrian Lee & Partners in Dublin, said at the FX12 Summit.

‘Recessionary Risk’

“There’s a latent risk there that people misunderstand,” he said. “It can be confused with the breakup risk, which we think is nonexistent, but there’s a recessionary risk that is underestimated.”

The euro region’s gross domestic product is forecast to contract 0.5 percent this year and to expand 0.3 percent in 2013, according to the median estimate of economists surveyed by Bloomberg.

“Active currency management works best when the markets show the highest risk,” Maria Heiden, an investment adviser at Berenberg Bank in Hamburg, said at the summit. “When the trends come into the market, then an active manager moves away from the benchmark and then can add the value for the client in comparison to the benchmark.”

To contact the reporter on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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