European equity ace Richard Pease has warned it could be a 'disaster' if the EU is too nice to Greece because it will send a negative message to Spain.
Pease, who recently joined Crux Asset Management and transferred his £1.1 billion Henderson European Special Situations fund over to the boutique, said: 'My concern is the EU has insufficient back bone to stick to its guns because I think it sends a bad message to Spain.'
His comments were made as last-ditch talks between Greece and its creditors concerning €7.2 billion (£5.1 billion) of aid collapsed yesterday. Discussions have been postponed to Saturday. The country has already passed through multiple deadlines and Pease suspects there will be more 'kicking cans down the street'.
'It will be a disaster to be too nice to the Greeks,' he told Citywire Global's sister site Wealth Manager.
In his view, the eurozone 'can live without the Greeks' - although he recognises that a 'Grexit' would create significant volatility in the short term.
He is more upbeat about Spain and Portugal, which he says appear to be 'doing the right things'. Nevertheless, the challenge for both countries is to 'carry the populus with them'.
'I was never hugely convinced by the single currency. Once you go down that route it is a mess to get out of. It means a lot of upheaval,' Pease added.
Given this challenging backdrop, the star manager continues to take refuge in businesses with dominant market share, strong balance sheets and global exposure. Most importantly, these companies are not reliant on economic recovery.
Although valuations are looking more expensive in comparison to historic averages, he says that historic averages mean less because of the extraordinary low interest rate situation currently being experienced.
Pease's only position in the periphery is biotech company Grifols, which has a global market share and derives close to 65% of its business from the US.
Across his portfolio, which is relatively low turnover, he is positive about Irish conglomerate DCC and is supportive of its recent acquisition of Butagaz.
He previously held Grand City Properties, a German residential play, which he sold a few months ago after seeing a four-fold increase in his investment. He now holds Around Town, which is a high yielding German commercial property play.
Pease cites Aurelius as another long-term favourite. The company turns around distressed companies, which it buys on favourable terms from larger corporates.
Elsewhere in the fund he has reduced long-term holding lift operator Kone and bought into support service company Coor's IPO.
Over five years to the end of May, Pease has returned 84.2% with the European Special Situations fund versus 66.4% by the European excluding UK sector average.