LONDON Baring Asset Management sees a breakup of the euro and a high risk of defaults in the periphery of the euro zone, and is wary on western government bonds, the head of its global multi-asset team said on Wednesday.
Speaking at the Reuters 2011 Investment Outlook Summit, Percival Stanion said British equities with overseas exposure, as well as emerging markets, offered opportunities for next year due to better growth prospects.
"There's a fundamental flaw in the euro and eventually some kind of default will occur for Ireland and Greece and eventually Portugal and even Spain. The powers that be are trying to put off that evil day," Stanion told the Summit, held at Reuters offices in London on Wednesday.
"We think it's very likely (the euro) will fall apart. The chances to keep pushing things down the road in the hope of being bailed out by global growth is pretty low."
Stanion said the euro zone debt problems and forthcoming U.S. tax cuts were among factors which made benchmark bonds unappealing.
"We don't like government bonds, we don't like western bonds. The few bits of safe-haven status we have, we are gradually trading out of. We like Australia because of its linkages to Asia."
International companies such as Unilever (ULVR.L)(UNc.AS) and SABMiller SAB.L, however, provided exposure to emerging market growth.
"The equities we like are UK, multinationals, parts of the emerging arena. The UK we like, not because of the UK domestic economy, but because of exposure to better growth abroad," Stanion said.
"UK stocks can do 10-12-15 percent easily over the next 12 months but it's going to continue to be volatile. It's not a steady growth type environment."
Stanion added he expected gains of around 18 percent in emerging equities.
Stanion was also a buyer of gold on quantitative easing expectations.
"I've never bought gold for institutional clients until 2007, we bought it because the tensions in financial markets were some sort of money-printing exercise."
Stanion said Baring's flagship dynamic asset allocation fund, with 2.7 billion pounds ($4.2 billion) under management, owned no euro zone debt or euro currency.
He said the fund also had no yen exposure. It held 68 percent in sterling against a minimum requirement of 60 percent and had dollars in "the low teens" and a 4 percent position in the yuan.
(Additional reporting by Mike Dolan and Sebastian Tong. Editing by Jane Merriman)