Carmignac Gestion bond manager Charles Zerah has introduced Italian sovereign debt exposure into the £623m Carmignac Global Bond fund.
Speaking at a recently held quarterly udpdate in Paris, Zerah says he introduced 5 per cent in Italian government debt exposure in September following the European Central Bank’s announcement of unlimited bond buying in a bid to resolve the eurozone crisis.
He says: “We bought this debt as a trade rather than an investment. The road will be quite bumpy and we are far away from the end of the crisis.”
He says: “Italy does not need help like Spain and it is one of the biggest world bond markets. There will be less credit product issued in this year and in the coming years, because of buyback from the Federal Reserve on mortgage-based securities.”
Zerah explains there are mutual funds that have a long position on mortgage-back securities so they will need to replace this exposure by accessing liquid bond markets, like Italy.
He adds he would not buy any Spanish government debt. “I have some questions about the willingness of the Spanish government going to the ECB and ESM. So I would prefer not be involved. Spain has a private debt problem and a real estate bubble, where it is getting worse.”
Meanwhile Carmignac Gestion is concerned about the US fiscal cliff pushing the economy into recession. Carmignac director of risk management Frédéric Leroux says not dealing with the US fiscal cliff could have a 2-2.5 per cent hit on US GDP.
He says: “A systemic risk of the eurozone has been replaced by the cyclical risk in the US. Companies have halted investment in the US with their eyes on the fiscal cliff. Businesses are factoring in negative growth next year. They are asking for fewer loans and waiting to see the outcome on January 1.”
Leroux says even if the fiscal cliff is addressed inflation could remain a problem in the US. He says: “Since we have not seen a drop in inflation, we could be seeing the initial effects of quantitative easing and so we could say that possibly if growth picks up after January 1, inflation could go up.”