Cash is king for Barings
by Chris Sloley on Aug 04, 2011 at 09:01
International asset management firm Barings has upgraded its cash holdings in response to the ‘half-baked’ agreements reached in the US and the eurozone for their respective debt crises.
The company said this week that it had taken this ‘unusual’ move due uncertainty caused by lacklustre attempts to stem the sovereign debt crisis in the eurozone and resolve the debt ceiling debate across the Atlantic.
Stating that many risks remain in both the equity and bond markets, Barings said it had opted for cash despite some reluctance with regards to the deposit rates.
Percival Stanion, head of asset allocation at Barings, said: ‘We focus on the question as to whether our estimates of risk premia available in markets are sufficient to account for all of these risks. Broadly, we find them wanting not only in equity markets but also in bond markets.’
‘As such we took the unusual step of upgrading cash despite the derisory deposit rates available. We liken cash to a call option on uncertainty. Like any option it will be expensive to hold for long. But if uncertainty continues we hope for better entry points to risk markets.’
Stanion, who also currently manages Barings' Dynamic Emerging Market fund, said that failure to respond to the market uncertainty caused by the major events of the eurozone crisis and the debt ceiling debate would equate to a ‘dereliction of duty’.
And, while he highlighted how Barings had responded to the circumstance, he offered a scathing appraisal of both the debt ceiling agreement and also the Eurozone bailout plans.
He said: ‘Barings believes the global weakness will continue for several months due to rising inventory levels, the continued fiscal retrenchment of governments, and anaemic job creation.’
‘Short term deals in Europe and the US may stabilise markets temporarily but lack of a substantial solution to both problems is undermining business and consumer confidence.’
With regards to the eurozone, Stanion said that the ‘half-baked’ attempt to stem contagion would lead to a temporary halting of risk premia in the region but said it was ‘unproven and unlikely’ that it would resolve the crisis.
Meanwhile, he said that the major risk still evident in the US was the threat by a number of credit agencies to strip the country of its much-vaunted AAA rating. He said the uncertainty on this front was the ‘most crucial unknown factor for financial markets and the path of the global economy’.
