Our Views on Greece and Market Volatility

Comments from Chris Leyland, True Potential Investments’ Deputy Chief Investment Officer.

Greece has been heavily in the news over the last few weeks and investors are looking for information as to how this has affected their portfolio.

Markets have been very volatile over the last few months as investors digest news coming out of Greece. Before discussing what has happened, it should be noted that this volatility has brought the opportunity for investors to buy assets at lower prices. By utilising modern technology, such as impulseSave® to invest additional amounts, often, investors can maximise their returns quickly and easily.

The Greek prime minister, Alexis Tsipras, has called for a referendum on July 5th on austerity measures. The outcome of this and also whether the European Central Bank (ECB) believes it can still allow funds to flow to prevent banks in Greece from collapsing, will decide whether Greece stays within the Euro.

Greece has closed its banks until at least July 6th, and imposed capital controls limiting daily cash withdrawals to €60 a day and banning payments and transfers abroad. Greece’s current aid package expires tomorrow and it is also due to pay the International Monetary Fund a payment of €1.6bn tomorrow as well, on which it is likely to default.

Nobody can say whether or not Greece will leave the Eurozone, but this is uncharted territory.

Looking at the markets over the last few weeks, investors had taken a ‘wait and see’ attitude and had become more optimistic about a positive outcome. This has now reversed and equity markets have fallen back this morning. Looking at the bond market, yields have sharply risen for Italy, Spain and Portugal although, in contrast, German bond yields have fallen, their bonds being seen as safer in times of a crisis.

For many investors, the big worry is ‘contagion’, where, if Greece leaves the Euro, pressure could be applied to the economically-weaker countries such as Portugal, Spain and Italy to also leave further down the line. Many commentators, however, believe that the ECB will step on any sign of contagion with further Quantitative Easing measures to calm markets.

Looking through the True Potential Wealth Strategy Fund Range, Schroders have kept a larger than normal cash balance, which will have been positive for performance this month. The managers are nervous on markets, especially the bond market, where they feel liquidity could be stretched if investors look elsewhere to place their cash.

SEI look to offer solid returns with controlled volatility. Their position of selling the Euro currency and buying US Dollars will have helped performance against the Greek backdrop.

Close Brothers believe that markets still haven’t fully priced in the possibility of a ‘Grexit’, so we could see some short-term volatility. Over the long-term, they believe European growth will not be derailed and weakness in the European markets could be a good buying opportunity.

The conclusion from this is that, until the problems in Greece start to be resolved, volatility will continue to be a feature within markets. We believe that diversification within portfolios, both within asset classes and geographically, is now more important than ever and this is best served by using professionally managed, multi-asset funds. This philosophy is an important part of our own range of fully-diversified True Potential Wealth Strategy Funds.

 

The information contained here is believed to be correct at the date of publication. The information contained within this blog post is not personal advice based on your circumstances. We aim to provide information to help you make your own informed decisions. If you are unsure about the suitability of an investment please contact your adviser for advice.

< Back to Blog