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UK corporates doubt EFSF’s ability to restore confidence in Eurozone

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An overwhelming majority (83%) of senior executives representing UK corporates do not believe that the European Financial Stability Facility (EFSF) will be sufficient in securing confidence in Eurozone sovereign debt markets, according to a survey of senior executives at a client briefing hosted by Investec Corporate & Institutional Treasury (‘Investec’), part of Investec Bank plc.

Despite the fact that a staggering 93% of executives surveyed are concerned (37% were ‘very concerned’) about the potential risks posed to their businesses by the Eurozone crisis, three fifths (60%) expect their firms to grow over the next 12 months. Nearly half (47%) predict organic growth while around one in 10 (13%) are planning to grow through acquisition.
 
When asked to identify how the Government could help their business to grow, over half (52%) of respondents thought that immigration rules should be eased while 14% thought that additional incentives should be given to banks to lend capital to businesses.
 
The research showed that nearly four in ten (38%) executives intend to grow their business over the next year by expanding into new markets. Furthermore, a quarter (24%) have already put in place a hedging strategy to protect themselves against further currency volatility. The overall majority of executives (53%) in attendance felt that the euro would be down on sterling over the next 12 months, but that the current high market volatility could provide excellent opportunities in FX markets with nearly 1 in 4 (23%) planning to use FX option products more over the next 12 months.
 
Commenting on the Eurozone crisis at the Investec briefing, Sir Howard Davies, former deputy governor of the Bank of England and former executive Chairman of the FSA, says: “I remain pessimistic about the Eurozone’s ability to produce a comprehensive solution to the crisis that everyone is hoping for.  We should not let the current focus on the EFSF detract from the need to ensure that Eurozone banks remain sufficiently capitalised. If Greece can be isolated from the rest of the Eurozone, the implications for UK companies and the wider economy should not be as damaging as some are predicting. Without ring-fencing Italy and Spain, the results could be catastrophic. 
 
Commenting on which of the main global currencies is likely to outperform, Sir Howard: says: “It’s easier to produce a case for why the euro, sterling, dollar and yen will all continue to be weak.  I predict the dollar will strengthen modestly as the US economy isn’t quite as flat as many people feared.”
 
Phil Shaw, Chief Economist for Investec in London commented: “It is critical that European leaders act quickly and decisively to stabilise Euro area sovereign debt markets and steer the global economy away from the threat of another recession. Even if they are successful, huge challenges remain in addressing the longer-term structural flaws in the Eurozone.”
 
James Arnold, Investec Corporate & Institutional Treasury, says: “With so much uncertainty lingering around the Eurozone, our clients know it is essential to protect their business from unexpected and adverse currency fluctuations. This is all the more pressing considering that a majority of clients have exposure to the Eurozone area. At Investec, we feel that it’s paramount to keep our clients informed of the risks that lie ahead. We always give them our own market views, but also feel it’s important to give them direct access to some of the best economic minds in the business. This provides them with the necessary insight and intelligence to effectively plan for the year ahead; a year that will clearly be hard for many.”
 
Investec Corporate & Institutional Treasury provide bespoke products and solutions which are typically reserved by other banks for their larger clients but are still appropriate for businesses of all sizes to take advantage of and understand.  These are combined with the level of service and client relationship for which Investec is well renowned.

 

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