Crisis summits, missed deadlines, crunch meetings, Alexis Tsipras being admonished for not doing his homework – ‘Groundhog Day’ seems an apt way to describe the ongoing Greece-ECB standoff.
Politicking aside, there is a concern over how this perpetual cycle of failed negotiations will impact on the markets, having already made a dent – following Greece voting ‘No’ to increased austerity measures, the FTSE 100 had fallen 0.8% at market close on 6 July, alongside the DAX and CAC 40 dropping 1.5% and 2% respectively.
But while some investors sweat, Jones, chief investment officer at Kames Capital, believes that there is no need to fret over what he labels as mere “noise”.
“We are not going to get into a situation where Greece exits [the euro],” he said.
The Greek banking system is so reliant on the ECB that they cannot pretend any longer – as we have seen from just two weeks of not having that support, the economy is unable to function and their position just becomes untenable.
He continued: “Every time Europe gets its act together something comes along and disrupts it. Equity markets responded well to QE, going up double digits and in some cases hitting 20% in the first quarter, but some of the edge has since been taken off that by the ongoing distraction that is Greece.”
“European corporates were beginning to acknowledge that, because of QE, low energy prices and a marked depreciation in the euro, the earnings outlook was pretty positive. But Greece has cast a shadow over Europe – economic growth in Q1 was steady, if very volatile, but Q2 has written back half of the generic gains.”
Jones says while he is confident that the European Central Bank has enough ammunition to counter any potential fallout, the situation should not have been allowed to drag out this far.
“The ECB is well-positioned to deal with it,” he expanded. “They have already said that they will adjust QE issuance against market conditions by front-loading it over the summer. They are able to go in and buy equities and bonds in any parts of the market that are distressed.
“The tools are there to deal with contagion, but it should have never got to this point. The internal dynamic in the eurozone is not a good way to manage an economy. The distraction value is large and the uncertainty is costly to investor confidence – it is distorting the agenda that should be there.”
“The picture is uniformly okay in the eurozone. It is being detrimentally affected by confidence issues stemming from the Greece distraction, but, given the stimulus being applied by the central bank, the recovery trade is not going to last just a couple of quarters.”
However, not everyone is quite so sanguine, as demonstrated by SGPB Hambros CIO Eric Verleyen’s latest portfolio alterations.
