(Written by Rebecca Lipman. List compiled by Eben Esterhuizen, CFA)
The situation in Europe is bleak, and the European Monetary Union is racing to construct ‘firewalls’ to mitigate contagion across the financially integrated EU nations.
On that note, Francesco Garzarelli, Chief Interest Rate Strategist at Goldman Sachs, has a pretty straightforward take on Europe’s sovereign crisis:
“Pressures on Euro area sovereign bond markets have progressively intensified and spread like a wildfire. Sparking the flames has been in the introduction in early June of ‘substantial’ private sector involvement in the restructuring of Greek debt, crystallizing the notion of default risk in sovereign securities. Pro-cyclical policies, including the introduction of provisional capital buffers related to government bond holdings by banks and higher initial margin requirements on repo at private clearing houses, have all but fanned the flames.”
Greek Solutions Prompted EU Contagion
Greece’s Private Sector Initiative has altered the country’s debt burden by reducing the face value of its liabilities. As long as foreign nations continue to deleverage, Greece can continue to move the private sector’s debt to the public balance sheets. But can other indebted countries do the same?
Not likely, says Garzarelli. Although the process may be working so far in Greece, if it applied to any of the larger sovereign nations it “would represent a sizeable destruction of wealth across the area with profound confidence effects.”
Case in point: At least 50% of each EMU member’s sovereign debt is held by the non-domestic sector, and 85% of claims against sovereigns of the Euro area are held by residents of the area itself, mostly highly integrated and leveraged financial institutions.
“Similarly, the risk of an exit from EMU of any of its constituents would result in the breakup of an irrevocable international agreement, with grave ramifications for the system of payments. ”
Europe might be in trouble, but there are many institutional investors that see the current turmoil as a buying opportunity.
To illustrate this idea, we collected data on institutional money flows, and identified a list of 10 European companies that have seen significant institutional buying during the current quarter.
Big money managers think the potential rewards of these stocks outweigh the sovereign risk–do you agree?
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List sorted alphabetically.
1. Amarin Corporation plc (AMRN): Focuses on developing treatments for cardiovascular diseases. Incorporated in Ireland. Net institutional purchases in the current quarter at 4.3M shares, which represents about 3.61% of the company's float of 119.13M shares.
2. ASM International NV (ASMI): Engages in researching, developing, manufacturing, marketing, and servicing equipment and materials used to produce semiconductor devices. Incorporated in the Netherlands. Net institutional purchases in the current quarter at 2.0M shares, which represents about 4.56% of the company's float of 43.89M shares.
3. Altisource Portfolio Solutions S.A. (ASPS): Provides services related to real estate and mortgage portfolio management, asset recovery, and customer relationship management primarily in the United States. Incorporated in Luxembourg. Net institutional purchases in the current quarter at 543.0K shares, which represents about 3.87% of the company's float of 14.04M shares.
4. Diana Containerships Inc. (DCIX): Focuses on the ownership and operation of containerships. Incorporated in Greece. Net institutional purchases in the current quarter at 1.5M shares, which represents about 8.64% of the company's float of 17.37M shares.
5. ICON plc (ICLR): Provides outsourced development services to the pharmaceutical, biotechnology, and medical device industries primarily in Ireland, the United States, and rest of Europe. Incorporated in Ireland. Net institutional purchases in the current quarter at 3.5M shares, which represents about 6.03% of the company's float of 58.09M shares.
6. Intercontinental Hotels Group plc (IHG): InterContinental Hotels Group PLC owns, manages, franchises, and leases hotels and resorts. Incorporated in the United Kingdom. Net institutional purchases in the current quarter at 10.3M shares, which represents about 3.66% of the company's float of 281.08M shares.
7. Mettler-Toledo International, Inc. (MTD): Mettler-Toledo International Inc. manufactures and supplies precision instruments and services worldwide. Incorporated in Switzerland. Net institutional purchases in the current quarter at 1.0M shares, which represents about 3.24% of the company's float of 30.87M shares.
8. Star Bulk Carriers Corp. (SBLK): Operates as a shipping company providing seaborne transportation solutions in the dry bulk sector worldwide. Incorporated in Greece. Net institutional purchases in the current quarter at 2.0M shares, which represents about 3.3% of the company's float of 60.56M shares.
9. Tornier N.V. (TRNX): Operates as a medical device company that designs, manufactures, and markets devices for joint replacement and soft tissue repair that enable surgical specialists to improve patients' lives by restoring motion and physical vitality. Incorporated in the Netherlands. Net institutional purchases in the current quarter at 458.7K shares, which represents about 3.65% of the company's float of 12.56M shares.
10. Ternium S.A. (TX): Engages in manufacturing and processing a range of flat and long steel products for construction, home appliances, capital goods, container, food, energy, and automotive industries. Incorporated in Luxembourg. Net institutional purchases in the current quarter at 3.3M shares, which represents about 6.75% of the company's float of 48.88M shares.