The Shanghai composite index is off more than 4% while European stock markets are down around 1% with miners continuing to slump.
Tsipras announced he would step down and call for new elections on the same day that Greece received the first tranche of its newly agreed bailout programme. The decision means the country will go to the polls for the sixth time in eight years.
There is no guarantee that Tsipras will get re-elected when Greeks vote, most likely on 20 September, but what it does mean is that Greece is likely to remain near the forefront of investors radar screens in the next few weeks.
That said, while the heightened uncertainty around Greece has stoked economic worries, it is the continued slowdown in China that has really roiled markets in recent weeks.
Rathbones’ CIO, Julian Chillingworth told Portfolio Adviser that it was always likely that Tsipras would call an election as the coalition was falling apart. But, he said, he will delay it as long as possible, to give as many people time to get back from the summer as possible.
Indeed, David Madden, market analyst at IG said: “Politics in Greece are so fractured it’s difficult to imagine any party getting into office and staying there for a prolonged period.”
As a result, he adds: “Dealers fear that Greece is doomed to a future of short-lived ineffective governments which will add to its financial woes.”
Ian Forrest, investment research analyst at The Share Centre, agrees that the news is not entirely unexpected but said reports today of the formation of a new party comprised of rebel Syriza MPs means the outcome of the election is highly uncertain.
“Although Tsipras remains popular, there is a possibility that the emerging government may be more left-wing and opposed to the reforms and austerity measures agreed in the bailout deal.”
This, he said, is likely to weaken the Euro and lead to further market volatility until the outcome, and the implications for Greece’s economy are known.
Chillingworth agrees that despite the new bailout, Greece’s problems are far from resolved, but he expects the country to be sidelined in Europe, especially as the slowdown in Chinese growth poses a much greater and more immediate threat to markets.
But, he added: “While people are likely to continue to worry about slowing growth in China, it is important to remember, while it is slowing, it is still growing around 5% which is considerably more than other parts of the world.”
With regard to China, the worries about growth were stoked on Friday by poor factory numbers from the Asian giant which further hit commodities prices.
The Caixin China General Manufacturing Purchasing Managers’ Index, which is closely watched both in and outside the coutnry, showed that the country’s manufacturing sector shrunk by the most in six and a half years.
This pushed down stocks across Asian markets during the day as it further confirms fears of economic weakness in the region sparked by an unprecedented devaluation in the currency.
Maddend said: “China and Greece have been dominating the headlines in recent months, and now they have both taken a nasty turn at the exact same moment, leaving traders terrified as panic selling becomes widespread.”
He added: “China has been on a mission to keep up the illusion of a gradual slowdown, but dealers aren’t buying it anymore and the market isn’t waiting around for the recent yuan devaluations to kick in.”
Asked how he is allocating to marekts at the moment, Chillingworth said he was doing so carefully.
“We are not ultra bearish, but we do expect markets to continue to be volatile and we will continue to look for opportunities.
