Greece will go to the polls for a second time this year, following the resignation of Prime Minister (PM) Alexis Tsipras. The announcement came only a week after the Greek parliament approved the country’s third EU bailout package, and brings political and economic uncertainty back into the picture. Caretaker PM, Vassiliki Thanou, Greece's first female PM, will stand in until the elections, which are expected next month. Could the uncertainty spell yet more trouble for investors?
A series of European policymakers said last Friday that they expect the newly elected government to press on with reforms agreed in accordance with the latest bailout deal. But Jussi Rosendahl and Shadia Nasralla, writing for Reuters
, point out that political uncertainty is rarely good news for investors in the short term.
So far, they note, investors around the world are showing their concern by playing it safe. “German Bund yields fell as the prospect of snap elections in Greece increased demand for safe-haven assets, which were also buoyed by concerns about a deepening economic slowdown in China,” they say.
But Rosendahl and Nasralla also quote Christian Lenk, a strategist at Germany’s DZ Bank, who claims Tsipras’ resignation is a double-edged sword: “In the short term it creates a lot of uncertainty. It will cause a delay in the reforms demanded by the memorandum of understanding.
“However, looking at the latest polls we see Syriza very strongly leading among the Greek parties. . . We see quite a strong win and the new government should be way more stable than the older one and this should dampen implementation risk in the longer term.”
Mixed receptionCity Wire Global
writers asked a series of leading European equity and bond managers what they make of Tsipras’ resignation.
While BlueBay AM’s Mark Dowding believes Tsipras stands a strong chance of winning the election, he feels China’s economic woes certainly won’t help the Greek cause. “The economy is in a dire state and the chill winds currently blowing in from Asia will hardly help matters,” Dowding says.
However, Graeme Bencke, Portfolio Manager and Head of Equity Strategy at PineBridge, sees the election as “more symbolic of an internal struggle” than something that will drastically affect markets outside Greece.
Whatever the outcome of the election, Bencke believes the equity market has largely “moved on from Greece” and investors “would need to see back-tracking on the agreement before real concerns arise”.
“In other words, this election is important for the Greek stock market, but not so much for broader Europe,” he concludes.
Andreas Hauser of German investment firm Habbel, Pohli & Partner agrees, and plans to keep a close eye on the election outcome before making changes to his portfolio.
City Wire Global reactions
Meanwhile, writing for Ekathimerini
, a daily newspaper published in Athens and distributed with the International New York Times
, Anchalee Worrachate considers the outlook for the Greek stock market.
Tsipras’ resignation has revealed how sensitive the Greek market currently is, Worrachate writes. “Greek bonds extended declines and Spanish and Italian debt erased earlier gains on Thursday,” she says. “The yield on ten-year Greek government securities rose 61 basis points to 10.16%, the highest in a week, on Friday as of 9:11 am in London.”
The few fund managers that took the risk may have reaped rewards, she adds. “Michael Krautzberger, Head of Euro Fixed-Income at BlackRock, said in July that some of the company’s total-return accounts bought a ‘tiny’ amount of Greek bonds. . . BlackRock has since sold most of them.”
Seen a blog, news story or discussion online that you think might interest CISI members? Email firstname.lastname@example.org