Investors in Greek assets were left nursing huge losses last week after victory for anti-austerity party Syriza sparked a rout in the country’s equity and bond markets.
The Greek ATG equity index fell by 15.4 per cent between Monday and Wednesday, while the floor fell out of the banking sector, with every bank falling by more than 25 per cent on Wednesday alone.
Greek government bond yields soared as their value fell, with the 10-year bond rising from 8.5 per cent to nearly 11.5 per cent, at the time of writing.
The collapse in value was even more extreme on shorter-term debt, as the three-year government bond yield moved from 10 per cent to nearly 19 per cent.
While equity markets had recovered slightly since the lows on Wednesday, government bonds continued to be sold off.
Jim Wood-Smith, head of research at Hawksmoor Investment Management, said the bond markets appeared to be increasingly convinced that Greece would leave the eurozone, judging by the sharp drop in bond values, especially on the shorter-term debt.
Investors seemed unconvinced that Greece would be able to pay its short-term obligations, even before Syriza has begun its negotiations with the European Central Bank and the International Monetary Fund.
Investors had been spooked by the prospect of Greece defaulting on its debts, as new leader Alexis Tsipras has vowed to fight the austerity measures imposed on the country by its creditors.
Meanwhile, a potential default and the prospect of Greece leaving the eurozone has led to fears that there might be a run on Greek banks, with investors flocking to take out their money for safe keeping.
But the carnage in Greece has yet to spill over into other European markets, as investors continue to buy up equities in the region following the announcement of large-scale quantitative easing at the end of January.
Mr Wood-Smith said he did not think there was much contagion risk for the rest of the eurozone, especially as he did not think Greece would leave the single-currency region.
He said the key difference between the current situation and the eurozone crisis in 2011 was that the other “basket cases” in Europe, such as Spain and Italy, had improved significantly in the past three-and-a-half years.
The plummeting Greek stock market last week has hurt eastern European equity funds, which have already been rocked in recent months by the fall in the Russian market.
While Greece is not the dominant constituent of any Investment Association funds, the JPM New Europe, Schroder ISF Emerging Europe and Pictet Eastern Europe funds all have more than 6 per cent of their assets invested in the country, according to their latest fact sheets.
But Jupiter’s Colin Croft, who manages both onshore and offshore eastern Europe funds, and Neptune’s Rob Burnett, who has Greek exposure in his European Opportunities fund, insisted the short-term volatility was a buying opportunity for Greek equities.
FUND MANAGERS DIVULGE THEIR POSITIONS
David Jane – manager of Miton’s multi-asset funds
“We are positive on European equities. We may be being hugely complacent. We have had quite a long time to negotiate what the potential outcomes are in our minds. We are assuming [that if Greece] exits or has partial default, it is not going to impact Europe more broadly.
“We don’t own any Greek stocks, but we don’t dismiss them. I just couldn’t find anything that stood out as ‘oh I want to own this company’. There are a few manufacturers that look interesting, but at the moment we are still investing in low risk.”
Simon Evan-Cook – Premier multi-asset manager
“While we have decent exposure to European equities, we have hedged away some, or in other cases all, of the exposure to the euro. We have had this currency position in place for some time, which has been useful given the single currency’s weakness.
“We still think [Europe] looks a little too expensive, while we also have concerns about its political underpinning given the imperfect structure of the eurozone’s financial system. The Greek election result is just one factor that could put this system under pressure.”
Robert Jukes – global strategist at Canaccord Genuity
“Our strategy has been to avoid European equities. We wouldn’t look to reinvest until there is some political resolution. We are concerned that Europe is heading into a deflationary period and this cannot be solved by quantitative easing.
“The euro going south does represent an opportunity. Domestic Europe is going to struggle and any companies that are selling into European economies are going to be stuck with a low-growth monitor, but companies that generate their revenue overseas will benefit.”
