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Europe can bloom after Greek drama: GSAM
Europe's investment potential could explode once the Greek drama is over, according to one of Wall Street's largest asset managers.
"The underlying fundamentals in many places in Europe are quite sound, but [the Greece issue] detracts focus from that," said Sheila Patel, CEO of International Goldman Sachs Asset Management (GSAM), a firm that manages $1.2 trillion globally.
"We've seen some strength in peripheries like Spain and Italy but when you see [Greece] going on, can we convince investors to move ahead? I'd say they are still hanging ... For every five investors we get to take a look at Europe, only one invests," she told CNBC on Monday.
Read More Greece: Funds were smarter than European leaders
Greek Prime Minister Alexis Tsipras and euro zone officials have wrangled for months on what reforms Athens needs to make in exchange for fresh financing from international creditors. Without an agreement, Greece risks defaulting on its debts, and possibly being forced to leave the euro zone. The uncertainty over Greece's future has resulted in depositors withdrawing 5 billion euros from Greek banks in the past week alone, and has scared off many from investing in the region.
"We've seen select investors take small steps in European large and small caps but there are still many others who are waiting. That gets you back to the waiting game we were in a few years ago, where because of exogenous factors like Greece, people hold back on equity investing and underlying value in the real economy," Patel explained.
In the latest chapter of the drama, Athens proposed a new set of reforms on Sunday in an eleventh-hour attempt to avoid bankruptcy. The new proposals will be reviewed at an emergency meeting of European and International Monetary Fund (IMF) officials later on Monday. Greece has $1.8 billion debt repayment to the IMF falling due at the end of the month.
This game of brinkmanship has become a norm for global investors, Patel warned. Still, she's confident a last-minute resolution will be reached soon.
Once considered dirt cheap, monetary stimulus has helped European stocks stage a comeback. The pan-European Stoxx Europe 600 (^STOXX) is up 11 percent during the past twelve months, compared to a 6 percent gain on the Dow Jones Industrial Average (Dow Jones Global Indexes: .DJI).
BlackRock, the world's largest money manager, is overweight on the region.
"Reasonable valuations are balanced against a still soft [economic] recovery. Aggressive central bank policy should help balance geopolitical risks," said Russ Koesterich, the firm's chief investment strategist, in a recent note.
So, where in Europe should traders look?
In the past, multinational corporations were typically the sector of choice for global investors since they were a safe way to increase exposure without really betting on the European recovery, Patel explained. But now, it may be time for regional-focused businesses to shine: "Obviously, companies exposed to China are having a more difficult time so in some ways, the peripheries could be more attractive than Germany."
However, investors won't be able to reach that point of discussion if they can't get past Greece, she warned.
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