He said: “Following the result of the Greek referendum, we have reviewed our asset allocation and decided to reduce the position in equities back to neutral, with the reductions all being made in the eurozone allocation to equities.
Last week’s referendum result was not what we expected and risk reduction during the summer is one of the principal reasons behind our change in policy. Indeed, the “No” vote introduced a period of greater uncertainty in eurozone politics and the chances of Grexit have now clearly risen. The risks to our clients’ portfolios are that the uncertainty lasts longer, or the resolution to the problem is messier than currently expected by markets, or both.
Verleyen warned that there is still scope for Greece abandoning the euro and a subsequent contagion effect.
“If Grexit is the result, there is likely to be some risk of contagion in other southern European countries,” he said.
“However, we believe that the European Central Bank has the ability to contain contagion risks in bond markets and banking systems. A more subtle risk is that a settlement that is thought to be generous to Greece might encourage other opposition countries, for example Spain, to demand similar relief from austerity or their own debt burden.”
Despite this concern, Verleyen said that once the storm has blown over he will be looking to restock SGPB’s European coffers.
“Apart from Greece, developments in the eurozone are encouraging and equity markets are reasonably valued,” he explained.
“If, and when the Greek situation becomes clearer, it is likely that we will want to increase our exposure to eurozone equities again.”
