The European crisis has gotten to the point where we see daily updates on the odds of Greece exiting the Eurozone, Spain’s teetering banking system or the entire monetary union falling apart.All of that has sent investors running for the hills, many are piling into bunds, gilts, and treasuries. It also means that many European assets are historically cheap.
For those with money and fortitude, this crisis is an opportunity to scoop up distressed assets and rake in the profits once things turn around.
Its a risky move, but it could be the path to incredible riches.
What's the play?: Purchases include large stakes in oil companies Royal Dutch Shell and Total, mining company Xstrata, Volkswagen, and the soccer club Paris Saint-Germain
Why Europe?: With the world's third largest natural gas reserves and a tiny population, Qatar has money to spare. Its investment arm, the Qatar Investment Authority has been one of the world's most active in recent years. When they see valuable assets at depressed prices, they have the resources to act. The macroeconomic and market environment in Europe is well suited to the fund. According to QIA executive Hussain Al Abdulla: 'Anything at the right price I'm willing to buy.'
What's the play? Buying loans from banks under pressure at 40, 50, and 60 cents on the dollar, investing in distressed assets like casinos and pubs.
Why Europe? Lasry, CEO of Avenue Capital, is not necessarily interested in European equities, but rather the trillion dollars in loans that European banks must divest. From a CNBC interview: 'People are raising capital, so it is absolutely a buyers market,' he said. 'You have banks who have to sell because of Basal III and because of the fact that they have to deleverage.' His strategy of investing in 'European vice', things like pubs and casinos available on the cheap, has succeeded as well, that fund is up 19.3% as of February.
Why Europe?: Bond king and former punk rocker Jeff Gundlach has a thing for wildly contrarian trades. He suggested this as an aggressive long term trade even as the IBEX was getting destroyed and the SPX was holding up. Sure, it looks terrible at the moment, but his AAPL/natural gas trade looked crazy at first glance as well. Look at how that one did.
What's the play?: Herro, a portfolio manager of The Oakmark International Fund is invested in certain European financials; including Credit Suisse, Lloyd's, Banco Santander, and BNP Paribas
Why Europe?: The attitude of many investors, that they wouldn't buy European financial stocks at any price, provides an investment opportunity. In in an interview with Bloomberg TV, Harro said: 'If we can sort through the various companies out there and look for those with good balance sheets, cost structures, loan books, and utilise the fear in the market today which is providing us with low prices, we will do so.'
What's the play?: Long term investors should look at European equities, they will offer the best 10 year return in the world.
Why Europe?: One of the most bearish voices around, Russell Napier expects the S&P 500 to head to 400. In his opinion, equity valuations in Europe are so historically low, that this could be the time to invest in Europe. The trigger point will be aggressive reflation by an empowered ECB or individual central banks. In an interview with the FT Napier said about an Eurozone breakup: 'I'm not sure that the equity prices will actually go down very much... sometimes equities get so cheap that they can discount just about everything'.
What's the play?: More than 80% of the funds from Fisher's Commonwealth Opportunity Capital hedge fund are invested in Europe. This includes the sovereign debt of Italy, Spain, the Netherlands, and Germany.
Why Europe?: In Europe, there's unlikely to be a home run equivalent to George Soros' famous bet against the pound. As Fisher described to Reuters, Soros dealt with a 'single country, not 17 different countries, one decision maker, not 17'. Though his fund reduced some of its most bullish bets due to an anticipated summer of volatility, an environment of risk and big market swings that can provide opportunity.
What's the play?: Go long on Europe, current valuations imply negative real earnings growth for the next 20 years.
Why Europe?: In a lengthy note titled 'The Long Good Buy' Goldman Sachs made a general bullish case for equities; slow growth and other negative outcomes are already priced in, and the return on equities compared to bonds has been remarkably poor, suggesting coming growth. They claim that 'The prospects for future returns in equities relative to bonds are as goodas they have been in a generation.' They see Europe in particular as underpriced, on European equities: 'Put another way, for us to justify the current market price in Europe, investors must be expecting a collapse in the ROE to around 8.5%, with an annual real growth rate of just around 1% for 20 years.'