Eurozone’s Greek Deal: What investors, analysts and strategists are saying
Stock markets in Europe rose sharply Monday after eurozone leaders said they would give Greece another bailout provided that the government implements a round of austerity measures in the coming days. Here is what some investors, analysts and strategists are saying.
Matthew Beesley, head of global equities at Henderson Global Investors: The relatively muted response by markets to the threat of crisis in the last few weeks suggests that “rightly or wrongly,” most market participants were never worried about Greece leaving the eurozone, he said in an interview.
Even if the crisis seems to be temporarily averted, issues remain, including the Greek government needing to pass legislation for reform, he said. Looking ahead investors will be able to put this behind them and focus on the nascent recovery in the eurozone that appears to be building, said Mr. Beesley.
– Chiara Albanese
Viktor Szabo, investment manager at Aberdeen Asset Management: Markets “are taking the glass-half-full view,” says Mr. Szabo. He said in a chat with MoneyBeat Monday that the agreement was “yet another final deadline” for Greece, with more deadlines to come. By Wednesday, Parliament in Athens has to pass pension overhauls and sales-tax increases that voters overwhelmingly rejected in a referendum a week ago. Monday’s market response was also helped by a rebound in Chinese equities, which have been selling off heavily in the past weeks, Mr. Szabo said.
– Chiara Albanese
Jonathan Loynes, chief European economist at Capital Economics: Greece’s future still hangs in the balance. “With the crisis having done enormous damage to the Greek economy and financial system in recent months, it is impossible to imagine that conditions will now return to anything like normal,” Mr. Loynes wrote in a note to clients.
“Capital controls are likely to have to remain in place and the additional austerity needed to build up the primary surpluses will weaken the economy further. In short, a Greek exit from the eurozone might just have been kicked down the road a bit. But unless the new deal includes a substantial restructuring of Greek debt–which is unlikely–Greece’s future inside the eurozone remains under huge doubt.”
— Josie Cox
James Purcell, cross-asset strategist at UBS Wealth Management: “We have been overweight eurozone equities.” Ultimately, when the Greek situation gets resolved, Europe is a strong story of recovery in economic fundamentals, he said. UBS is recommending buying European equities but is not making changes to its portfolio Monday.
Mr. Purcell said in an interview the euro was lower Monday because a traditionally negative correlation between equities and the currency was resuming. The trend of equity up, forex down faded a bit as the Greek crisis heated up over the past few weeks. But “it is back now,” he said. In early European trade Monday, the pan-European Stoxx Europe 600 index was up 1.7% and the euro was down 0.8% against the U.S. dollar.
– Chiara Albanese
Alberto Gallo, head of macro credit research at Royal Bank of Scotland: Investors are turning their attention to how severe the creditors’ demands for the troubled country will be. “It appears a slightly fairer deal than what we saw in yesterday’s draft proposal,” said Alberto Gallo, head of macro credit research at Royal Bank of Scotland, in a chat with MoneyBeat on Monday. The key question remains around debt restructuring, he added. “Reforms and new taxes are good, but extensions alone won’t make Greek debt sustainable.”
– Chiara Albanese
Joe di Censo, a managing director at BlackRock: “Our baseline scenario still is for Greece to remain in the eurozone,” he said at a media briefing Monday morning. “Right now, this really has been elevated to a political decision, which market participants have an incredibly difficult time assigning probabilities to,” he said.
Mr. di Censo said there hasn’t been much contagion in so-called peripheral countries, such as Spain, Italy and Portugal, which have been sensitive to spillover during previous bouts of the Greek crisis. “This largely reflects the view that Greece in financial and economic terms is more contained today than it was [in the previous crisis]. That doesn’t mean contagion risk has been completely absent – we have seen some sympathy widening of peripheral bond spreads. I think that’s the order of magnitude of contagion – not systemic contagion,” said Mr. di Censo.
–Christopher Whittall
Ewen Cameron, chief investment strategist for BlackRock: “I think it’s interesting that what the [European Central Bank] could do, they haven’t had to do,” he said, referring to tools such as ramping up the ECB’s bond-buying program or implementing other emergency measures if needed to soothe financial markets “The ECB has a lot of ammunition. It hasn’t had to use that,” he said at a media briefing Monday morning.
–Christopher Whittall
Jim Leaviss, head of retail fixed interest, M&G Investments: “We must not take Greek domestic approval for granted.” He points out that the deal goes against much of what Mr. Tsipras’s own party believes in, and against what the population overwhelmingly agreed to in the recent referendum.
However, he says it feels likely that the current crisis will come to an end, especially if politicians continue to emphasize the growth friendly element of the deal. “A bigger question is, of course, how far has the can been kicked down the road? The deal helps immediate liquidity, but does little to reduce Greece’s debt burden.” With a debt-to-GDP ratio of nearly 180% and without growth, de-levering, he stresses, cannot take place. “We will inevitably be back in this same position again within the next few years,” he says.
– Anuj Gangahar
Source: WSJ – What the Street Thinks About the Eurozone’s Greek Deal
