Grexit will cause equity volatility, but little else

Grexit will cause equity volatility, but little else

Greece missed its payment to the IMF, but markets have shrugged it off and they will continue to even in the case of a Grexit, according to market participants.

In spite of the risk of a Grexit edging ever closer, commentators anticipate contagion to be limited.

Greece failed to pay the IMF what it owed them on Tuesday, and has since issued mixed messages to its creditors after prime minister Alex Tsipras last night urged his country to vote no in the referendum, after earlier sending a letter agreeing to the creditor’s conditions with some minor changes.

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In spite of this both yesterday and in early trading today European markets have moved higher.

The FTSE 100 was up 0.12 per cent to 6,616.49 at 8.14am this morning, while Germany’s Xetra Dax was up 0.2 per cent at 11,202.67, France’s CAC 40 was up 0.16 per cent at 4890.8 and the FTSE Eurofirst 300 was 0.2 per cent higher at 1,536.98 points.

Shaun Port, chief investment officer at Nutmeg, said: “We believe the backstops put in place in the past three years will limit contagion to European banks should Greece leave the euro.

“It’s likely the ECB will do whatever it takes to guarantee continued growth.”

Mr Port thinks in the long run, European equities look “really attractive”.

Rowan Dartington Signature’s managing director, Guy Stephens, agrees and said: “for the time being, contagion risk is viewed as low given the predicament in which Greece finds itself having elected an anti austerity government.”

For the time being Mr Stephens is preparing for “a very uncertain period of elevated volatility”.

Indeed, the bigger issues ahead are the €3.5bn (£2.48bn) owed to the Eurosystem on July 20 and, more urgently, the referendum due to be held this Sunday July 5.

Chris Iggo, chief investment officer of fixed income at AXA investment managers, added that while there is an optimistic view on equities, there are reasons to be cautious on European bonds.

He explained: “If Greece leaves the euro, the direct implications on euro peripherals and credit are limited.”

But he noted there could be longer term “geopolitical implications” and “credibility implications”.