Do not write off eurozone as a whole

DAVID Zahn, head of European fixed income at Franklin Templeton Investments, said Japan was an interesting investment case.

“Many people aren’t as focused on the quantitative easing going on in Japan, which will take some of the weight off the US’s tapering decisions.

“The printing of money is the key factor, but they also need structural reform. Hopefully, after several years of some growth, there will be stability.

“We are underweight on Japanese yen and hold mostly short-dated bonds, where there’s not that much exposure to interest rate risk.”

Zahn said the longer-duration assets he held tended to be in Europe, where he thinks interest rates will be on hold or going lower — and thus do not pose a threat to the value of these bonds. He has significant exposure to mostly longer-dated Italian bonds. By the same token, he holds fewer US Treasury instruments.

Some of the opportunities he has spotted might surprise.

“Countries like Poland have made really big strides in making sure they meet many of the fundamentals to get into the eurozone,” said Zahn.

“Poland is one of the single-Arated countries worldwide doing well. They didn’t have a recession, have low debt to GDP, no big deficit and good growth. They offer good yields compared with most of the eurozone.”

He said Europe was too often viewed as a homogenous bloc that would suffer from the problems that came with global quantitative easing.

“We believe that such concerns run the risk of writing off developing European countries too quickly and, moreover, fail to distinguish between their disparate economies.

“Several of these countries are undoubtedly experiencing cyclical slowdowns, but when their individual credit fundamentals are closely examined, several still appear to demonstrate superior growth and debt metrics compared with many other European countries.”

Along with Poland’s fiscal discipline and recession-proof growth, Zahn cited Lithuania and Bulgaria as offering value potential in the sovereign debt market, mostly thanks to successful structural reforms.