Gestion Férique


June 6, 2012


Markets trade on Greek election concerns


One of the main differences between professional and amateur investors is that the latter group trades securities after an event occurs that alters the outlook of an asset class.  Professionals buy or sell before circumstances change.


During the past month investors turned their attention to Greece, where they have been closely following developments, speeches and polls in the lead-up to the June 17th elections. Anti-austerity parties there have been threatening to renege on previously negotiated bail-out deals.  If that happens, a “Grexit” (a forced Greek exit from the euro) could follow.


As Canadian Prime Minister Stephen Harper noted, the fact that a small country like Greece should transfix the global investment community is unusual. However the fear is that if Greece leaves the euro, other larger peripheral European countries, such as Spain and Italy, which have seen rising bond premiums, could come under pressure too.


In a perfect world, the European Union would figure out a way to issue “Euro bonds,” which would back the weaker economies. However well-managed AAA euro zone economies such as Germany, Finland and the Netherlands fear that if that happens, then peripheral states will just continue to borrow and spend, and thus dig themselves into a bigger hole.


Sadly, Europe’s troubles could not have come at a worse time for the global economy, because other key pillars are experiencing problems of their own. The United States continues to struggle to rebuild its economy from the ashes of the 2008 financial crisis and ensuing recession, but results have been mixed. The most recent US housing sector data were mildly positive, leading some experts to think that a bottom had been reached. However the good news was short lived, as the latest employment data were weaker than expected and previous month’s job creation totals were revised downwards.


China too, another big global growth engine, looks to be losing steam. Growth projections there have been revised downwards, and many think that further revisions may be on tap.


Yet despite the international turmoil in far bigger economies, the Greek election date has given investors a specific event to focus on. As a result, recent market weakness in many countries with direct and indirect exposure to developments in Europe can in part be interpreted as a reaction to events there.


For example many investors restructured their holdings after Greek polls began to emerge showing the radical left wing Syriza movement running neck and neck with the more moderate New Democracy party. These include savers who have withdrawn an estimated $3.9 billion to $9.1 billion from Greek banks.


Canadians have not been immune to these actions, this despite the fact that the country has little direct exposure to Greece. That said, many Canadian businesses and investors do have exposure to other international players that are exposed to developments in Greece. And in an interconnected world that matters.


In short, the Parthenon is likely going to be a consistent backdrop to television news clips until those Greek election results come in. However professional investors will have made their moves long before that.





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