Investors ignoring silver lining of Greek euro exit

A man passes in front of a huge replica of a one drachma coin in Athens October 26, 2011.

LONDON (Reuters) - As the odds shorten on Greece leaving the euro, investors are ignoring past examples of currency devaluations that resulted in greater competitiveness and asset price booms.

Investors contacted by Reuters acknowledged the precedents of asset prices which slumped in the midst of crisis, then bounced back rapidly thanks to export and tourism booms sparked by a cheaper currency -- trends which could be repeated in Greece.

"In a world where new drachma come in at a much lower level ... I think there is an underlying economic reason why prospects for the private sector could get better after ... a break in the exchange rate," said Alan Brown, chief investment officer at Schroders (SDR.L).

Uncertainties surrounding Greece's situation and a lack of clarity on how to exit a currency -- as opposed to dismantling a fixed exchange rate -- mean few have plans in place to pounce on Greek assets after a devaluation.

"Would I invest in Greece (after a devaluation)? In theory yes. In practice, no ... You would be buying blind," said Charles MacKinnon, chief investment officer at Thurleigh Investment Managers.

"Say you have got a tourism company that has no expenses outside Greece, it would be enormously positive in theory. But what if they have borrowed money in euros? You could have two hotels side by side, one of which makes money hand over fist, the other of which goes bankrupt," he said.

History offers many examples of currency and debt crises, viewed as disastrous at the time and often accompanied by collapsed governments and market crashes, but which proved to be turning points towards economic recovery.

In the run up to Argentina's economic crisis and debt default of 2001-02, the Merval stocks index .MERV slumped to a low in November 2001 but by the end of January had more than doubled.

DECADES OF GROWTH

In Britain, the "Black Wednesday" crisis of September 1992 when the pound left the European Union's Exchange Rate Mechanism -- a move predicted by investor George Soros in one of his best-known and most successful trades -- helped the country on its way to nearly two decades of growth.

Such examples are not lost on Ryanair (RYA.I) boss Michael O'Leary, who earlier this month, announcing the launch of new routes to Greek destinations, said he would expect a Greek devaluation to jump-start a tourism boom.

But investors who accept a devaluation might catalyse a Greek recovery also say they would be satisfied to benefit from the associated uplift in their assets held outside Greece as global volatility eases when the crisis passes.

"I personally have not given it a huge amount of thought from the point of view of wanting to participate in any sort of rebound simply because if they do leave the euro zone ... and the markets do well, then holdings that we (have) elsewhere will do well," said Mike Lenhoff, chief strategist at Brewin Dolphin (BRW.L).

Most view such a benign outcome as still well over the horizon, however.

"On a scale of when this European sovereign debt crisis is over, I think we are at the half-way mark," said Charles Morris, head of absolute return at HSBC (HSBA.L) Global Asset Management. "I do not think we are near the end."

(Editing by Sinead Cruise and David Holmes)