As crunch time looms for Greece and its future — be it in or out of the eurozone — money management executives will be closely watching the European equities, bonds and currency markets for increased volatility, and the chance to add to their positions.
Executives said they have maintained existing overweights to European assets.
As Pensions & Investments went to press July 10, their belief was that — whatever the outcome relating to proposals put forward by the Greek government to the European Union and discussed at meetings over the weekend — positive earnings and growth in Europe will carry the region through.
The meetings follow a July 10 conversation among Greece's creditors, looking at the latest proposals; a referendum July 5, in which the Greek people rejected EU-imposed austerity measures; and what sources have labeled one of the best games of political chess they have ever seen.
The fact that Greece met its deadline to submit new proposals, which sources in the money management industry said were more austere than the government previously had suggested, buoyed markets. The Euro Stoxx 50 gained 3.18% July 10, vs. its July 9 close. The euro also reacted, with a 1.13% gain as of 5 p.m. EDT on July 10. Yields on European bonds remained steady July 10.
“It looks like markets are taking it as a deal is done,” said Richard Benson, London-based managing director, co-head portfolio investments, at Millennium Global Investments Ltd.
However, sources warned, while a compromise now looks more likely than a Greek exit from the eurozone, markets could be in for a shock. “Quite how a more austere package can be agreed after the last one was rejected by popular referendum rather escapes me,” Mr. Benson added.
“It appears that the Greek government has capitulated and offered almost exactly the same deal that a referendum rejected only a few days ago,” added Paul Lambert, London-based head of currency at Insight Investment in a July 10 interview. “The complication now is that it is a new program, and as such has to be ratified by all of the EU parliaments. Some may be more reluctant than others to back new money for Greece.” Mr. Lambert said a compromise is a “high probability rather than a certainty,” and that any discussion over the weekend likely will not answer questions over bank recapitalization and debt rescheduling.
Still, observers said they are not particularly worried about ongoing opportunities to invest in the region.
“Investors have had five years to get their portfolios ready for what is an uncertain and fluid situation in Greece,” said Audrey Kaplan, head of the international equity team, senior vice president, senior portfolio manager, at Federated Investors Inc. in New York. “But we still believe we are in a moderate recovery in Europe, whether that is Ireland, which put out stronger growth figures and forecasts; or Spain, Italy and Germany, which are benefiting from the cheap euro and have bigger export economies. Any volatility on the back of (the situation in Greece) would be a buying opportunity.”