Hedge funds fear Italy, Spain default: survey

Date: Wednesday, November 30, 2011
Author: Tommy Wilkes, Reuters

Almost half of hedge fund managers believe Italy and Spain, two major countries at the center of the euro zone debt crisis, are likely to default, a survey published on Tuesday showed.

A majority of the managers surveyed, collectively representing about $800 billion in assets or more than a third of the global total, also reckon Greece will exit the euro.

The survey by hedge fund research and advisory firm Aksia said 42 percent of managers feel a debt default or restructuring by Italy and/or Spain is "definite" or a "real possibility" within the next two years.

Some 65 percent said European Union member states may issue eurobonds, debt that would be sold jointly for the euro zone and which paymaster Germany opposes, fearing spendthrift countries would piggyback on its low borrowing costs.

Managers are also more bearish on global growth prospects than 2012 International Monetary Fund forecasts, with 80 percent believing the U.S. Federal Reserve's "Operation Twist" aimed at lowering long-term borrowing costs will ultimately fail to have an impact on financial markets.

The bearish approach is reflected in the strategy managers' tip to be the best performer for 2012, called Global Macro, as range-bound markets are driven by macro factors rather than fundamental value.

Most of the 125 "institutional-caliber" hedge funds surveyed also say the current wave of financial regulation is "irrelevant" to their investments and 21 percent even reckon it will help their strategy.