Worries about the Eurozone continue to accelerate, driven by uncertainty surrounding the financial health of Greece, Portugal, Italy, and now Spain.
As volatility seems set to return to mid-crisis levels, Fran Rodilosso, international high-yield corporate bond portfolio manager at Market Vectors ETFs, sees key differences between what is taking place today and what the markets saw in 2008.
“It does not make it any less painful, but worse news from Europe is anticipated by the markets. In my opinion, the financial system is perhaps set up to function better this time around,” said Rodilosso, manager of the Market Vectors Fallen Angel High Yield Bond ETF (ANGL), the Market Vectors International High Yield Bond ETF (IHY) and the Market Vectors Emerging Markets High Yield Bond ETF (HYEM). “I believe there may be buyers of last resort more ready, willing and able than they were in 2008, when the world was caught off guard.”
“The differences between today and the beginning of 2008 are many,” continued Rodilosso. “No doubt sovereign balance sheets among developed countries are in bad shape. But in many of those same countries, corporate balance sheets are no worse off or possibly even better. Consumer debt, while higher in peripheral Europe and France, is lower in the US, UK and Germany. Emerging markets sovereign and corporate balance sheets are still quite healthy.”
Rodilosso also noted that there are pools of capital forming in order to take advantage of asset sales, particularly in Europe. “Be it private equity and distressed funds, collateralised loan obligations or Chinese enterprises looking to expand abroad, there are buyers of assets at lower levels than current valuations,” he added.
“Those levels might not please the banks or shareholders who are forced to sell, but I think the system is set up in a different way this time. Unfortunately, one of the main problems today is that sovereigns and central banks have fired so many bullets. They are less capable and less credible backstops themselves,” said Rodilosso.