The threat of the euro zone imploding has faded in recent months, catching out investors who have bet on its collapse, a fund manager told CNBC Friday.
“Many investors were waiting for the immediate demise of the euro zone for two years and now have difficulties turning around emotionally, intellectually and also financially,” Beat Wittmann CEO and partner, Dynapartners, said. The European Central Banks’ Long-Term Refinancing Operation (LTRO) “was the turning point because it removed the tail risk.”
These investors are “simply not invested” in Europe after the volatility seen last year, he added.
Since December, the ECB has lent to European banks more than 1 trillion euros ($1.33 trillion) at super-low interest rates, and those funds don’t have to be paid back for three years. This long-term refinancing operation has helped calm worries about the euro zone debt crisis, leading to European stock markets rallying and bond yields on peripheral euro zone countries falling this year.
Trading volumes are still relatively low, however, and some investors are concerned about the long-term effects of the LTRO and its impact on the real economy.
“I don’t know why people are concerned about tail risk. You have to answer two questions: Is Europe able to stimulate more, and are they willing? The answer is yes to both,” Wittmann said. He is one of many in the market who believe there will be further liquidity operations in Europe and the US.
“Banking in the future will look completely different. The golden age of finance is over, and the last people to get that are the banks,” Wittmann, who invests in European banking equities through exchange-traded funds and derivatives, said.
“If you don’t take risk in this environment, when do you take risk?” he asked.