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Greece votes ‘no’: UK stock market reaction ‘negative but not disastrous’

Joanna Faith
Written By:
Joanna Faith

The FTSE 100 has fallen this morning on the back of Greece’s referendum result which rejected the terms of the European bail out.

The index was down 1% in early trading following the news that 61.3% of Greeks voted ‘no’ to creditors’ bailout proposals.

The FTSE 100 is now around 8% down from its recent high on 27 April (when it closed at 7,104).

European markets fell around 2% this morning.

However, the surprise resignation of Greek finance minister Yanis Varoufakis helped stem further losses.

Laith Khalaf, senior analyst at Hargreaves Lansdown, said: “The Greeks have knocked the ball firmly back to the rest of the euro zone, who now have to decide whether to continue the rally or simply walk off court. The next 48 hours promises to be a critical period for the future of Greece, and a volatile couple of days on the stock market.

“So far stock market reaction has been negative but not disastrous. This suggests a fair degree of pessimism over the Greek referendum result had already been priced into markets, after all this bolt has hardly come out of the blue.

“The stock market is renowned for being the only market in the world where falling prices aren’t met with applause. Investors should appraise the prudence of this instinctive reaction in the current situation. Things could well get worse for stocks in the coming days and weeks, but the market is significantly cheaper than it was a month ago, and on a long term view still looks attractive compared to bonds and cash.”

What happens next?

German Chancellor Angela Merkel and French President Francois Hollande are due to meet in Paris this afternoon and a joint statement is expected to follow.

The European Central Bank is also meeting today to determine whether to extend a new lifeline to Greek banks, which is a key step in allowing them to re-open. All eurozone leaders will then meet tomorrow afternoon in Brussels to discuss their response.

What should investors do?

According to Khalaf, investors should resist the urge to cash in their stock market investments, provided they are still in it for the long term.

“If you sell up every time there is bad news out there and buy back in when things look rosier, you’re probably going to lose out in the process,” he says.

“Those with cash to spare might consider putting some of it to work in the market, if they are saving for long term goals. Stocks may yet have further to fall, but the question for potential investors is not where markets will be in two weeks’ time, but in five to ten years’ time.

“Over this time period equities still look like a decent bet compared to cash paying close to zero in interest, and gilts yielding 2%.”