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Greece crisis: what it means for investors

Kit Klarenberg
Written By:
Kit Klarenberg

The Greek government has shut the country’s banks, withdrawn from negotiations with creditors and announced a referendum on the country’s continued eurozone membership.

These moves sent global markets tumbling this morning. But what does it all mean for investors over the longer term? Four experts give their views:

Graham Spooner, investment research analyst, The Share Centre: “Investors should expect to see short term uncertainty and an increasing amount of volatility in the European markets this week.

“Although this has been a long time coming, the markets will still be affected and savvy shorter term investors will keep a close eye to see whether they wish to take advantage of the volatility. Longer term investors are unlikely to be panicked by the situation, but should be aware that markets could be entering unchartered waters.

“The greater concern may be over the possibility of contagion into other countries. As ever the attractions of a diversified portfolio stand out as a beacon of light.”

Tom Stevenson, investment director, Fidelity Personal investing: “I suspect financial markets may have got it about right. This morning unsurprisingly knocked equity markets, the euro and other peripheral bond markets hard. But investors have not panicked.

“The most affected markets are those in the rest of the eurozone, with the German and French equity markets down around 4 per cent in early trading. This followed smaller slides in Asia overnight as investors took their first opportunity to act on the momentous events over the weekend.

“Elsewhere, the FTSE 100 is around 2 per cent lower, peripheral bond yields have moved higher (as their prices have fallen), German bunds are playing their usual role as a safe haven and so is gold.

“In other words investors are doing pretty much what you would expect in the circumstances. They are taking some risk off the table, looking for ports in the storm and bracing themselves for a difficult week.

“Investors should make sure their portfolios are well-diversified, have a sensible balance of assets and are spread around the world’s markets. The short-term outlook is unknowable but the long term has always rewarded deep breaths and calm thinking.”

Alan Cauberghs, senior investment director, fixed income, Schroders: “It is important to note that it is far from certain that a default on its IMF payment would lead to Greece’s exit from the eurozone and consequently a default on its European lenders.

“Greece’s links with the eurozone financial system have significantly declined in the wake of 2012, when one of the largest debt restructuring deals in history wiped €100bn from Greece’s liabilities. The risks associated with Greek sovereign debt also largely passed from the eurozone’s banking sector to the eurozone’s public sector. We believe that the direct impact of a Greek default should be limited.

“The contagion risk for Greek debt has also been theoretically muted by the establishment of the European Stability Mechanism. This pot of capital, of around €500bn, should maintain the flow of cash for affected states should there be any threat to vital payments brought on by a Greek default.

“Of course, the possibility of hidden financial ties, as well as indirect and political implications, must not be ruled out. If Greece outright and unilaterally defaults, it is likely to have significant market implications at least in the short run. However, we believe that structurally, global financial markets look well shielded from the fallout of such an event.”

Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers: “Global markets today face a triple whammy of negative news, with the deterioration in the Greek situation accompanied by the first chance to react to Friday’s terrorist atrocities and a further steep fall in Chinese markets, taking them to technical bear market territory.

The IMF deadline tomorrow now looms large, whilst investors will now be looking for any possibility of an eleventh hour rescue to prevent either or both of a Greek default or exit. Meanwhile, Friday’s terrorist attacks have added to the generally risk averse sentiment, with travel companies being inevitably hit. In addition, and despite a relaxation of bank reserves and a further interest rate cut, Chinese markets fell another 7%, pulling it into a technical bear market, while also implying that the Chinese authorities are keen to act extremely quickly to stem further declines.

Today’s falls have left the FTSE100 virtually flat for the year, with the volatility set to continue even if the general view is that a Greek solution may yet be cobbled together. Unsurprisingly bank shares have been the hardest hit, particularly in southern Europe. In currency markets the euro is markedly weaker, including against the pound and the dollar.

In the meantime, the situation has left investors to ponder whether the broad brush mark down of share prices is applicable to the holdings they have. Indeed, it will be the case for some that the quality companies they hold are actually relatively unaffected by some of these developments, in which case we may yet witness some buying on these dips.”