6th July 2015
As markets respond to the Greece’s referendum vote against austerity measures, the experts give their views on what the fall out means for investors…
Chris Williams, chief executive of Wealth Horizon, says: “The ‘no’ vote by the Greek people means we are now entering uncharted territory. With another repayment due in two weeks, the likelihood of Greece being forced out of the euro has undoubtedly increased.
“Greece can now either decide to issue its own unsecured loans to its banks without the ECB’s permission, or create a new currency to provide vital finances to its banks and the wider economy. Eurozone leaders will expect to see fresh proposals from Greece in the next day or so, but markets are likely to suffer in the near term as the uncertainty continues.”
Nigel Green, founder and chief executive of deVere Group, says: “With depressing predictability there will be extensive negotiations taking place right now behind the scenes between Athens and its creditors. I suspect that there will be a degree of debt relief for Greece, but eurozone leaders will be aware of the considerable consequences of softening their stance too much.”
“In the wider scheme, it remains unclear what has been ultimately achieved at this stage – except more chaos. This chaos will mean that investors will be braced for more turbulence and there could be a stock market sell-off over the coming days as investors seek perceived safe havens such as gilts and US treasuries.”
Many will seize on the chance to profit from volatility.
Green adds: “This predicted stock market sell-off and the resulting drop in prices will, of course, create an important buying opportunity, especially for investors with a longer-term perspective.
“With negotiations potentially taking an extended period of time, the uncertainty is likely to be protracted, meaning the sell-off and buying opportunity could also last some time – unlike last week when markets bounced back quickly. The buying opportunity will be seen as particularly attractive as much of the eurozone is in recovery mode.”
‘Greece could be the next Venezuela or Argentina’
Green warns: “Greece could become another Venezuela. With Greeks already storming banks, queuing at now increasingly empty ATMs, ever barer supermarket shelves, and petrol stations running out of fuel, Greece is already looking eerily like Argentina in economic terms.”
“We can expect the banking system to plunge further into chaos, prices will soar, and there will be a smaller base from which to collect tax revenues, meaning more hardship and less of a state safety net for pensioners and those in need of unemployment and other benefits.”
Paras Anand, head of European equities at Fidelity Worldwide Investment, says: “The result of the Greek referendum clearly heralds a period of volatility for the markets. However, when you consider the factors that influence stock price movements over the long term, it’s important to remember that macroeconomic events play a small supporting role to fundamental, company specific drivers.
“During periods of market turmoil this can be very difficult to remember. However, whilst the crisis in Greece remains fluid and the ‘no’ vote by the electorate throws down a new gauntlet to the European leadership, I believe the risk of contagion to the wider financial system remains modest.”
But Helal Miah, investment research analyst at The Share Centre, warns: “Emergency meetings have been called by the creditors on Tuesday and the Greeks now feel they have a stronger bargaining position. However, interested parties should note that if these talks also fail then it is almost certain that Greece will be heading for Euro exit.
“For investors, an exit could create prolonged uncertainty and an increasing amount of volatility in the European markets. Whilst Greece only represents a tiny portion of the European economy, the ramifications could have a disproportionate effect on the political and economic union. The risk of contagion of confidence to other Eurozone nations is the most worrying, showing up in increasing bond yields of countries such as Spain and Portugal.”