Greece continues to dominate the news, with the prospect of Grexit ever closer as we approach yet another crunch point, when Greece will, or possibly won’t, but probably will, be required to repay a very large sum of moneys owing to the European Union.
The share markets have reacted with uncharacteristic certainty over this and have fallen steady over the last three weeks which seems to demonstrate a rather less sanguine view of Greece than is being portrayed by politicians who are claiming that the loss of Greece from the Euro will no big deal. To be fair, a Grexit as it has become known, on its own and in isolation would probably not be much of a problem, were it not for the possible consequences.
In my opinion the consequences of a Greek exit have become potentially far more serious since the local elections in Spain returned a majority of Anti-Austerity local authorities and this should be regarded as an indication of the likely outcome in the Spanish general election to be held there in November. If, as seems possible, Spain puts the anti-austerity Podermos party in power nationally, then a similar scenario to that being played out in Greece is possible. Even the prospect of such a thing would have serious consequences for global investor confidence.
Spain is the fourth largest economy in the Eurozone, the fifth largest in the EU and the thirteenth largest in the World. A ‘Spaxit’ (will we really call it that?), coupled with the prospect of a Brexit with the UK facing a referendum on the EU later this year, would be catastrophic. It seems to me that these threats are what have unsettled markets as far afield as Asia and the Far East. Europe is a highly prosperous trading block and economies all around the world are heavily reliant on it for their own domestic success.
Bond markets have reacted negatively too with Government bonds falling in value as their inter rates (yields) rise in a bid to attract buyers. Quality credit grade corporate bonds have come under pressure as safer government bonds threaten their space with higher yields. Only high yield bonds have been able to escape those consequences falling instead on the fears that have affected the share markets, surrounding Greece and a possible Spanish contagion.
For many this will be a long awaited opportunity where we will soon be able to invest cash that has been held back in the last 18 months, because of fears and uncertainty surrounding the global economic scene. If this does prove to be the big sell off I have been predicting then it is likely to last for a significant period of time. If it follows the pattern of all previous ‘big events’ then it could last as long as 18 months, but I doubt that very much. It all depends on Spain and the reaction in the USA.
Important Risk Warning – Please Read
It is important to understand that this report is not intended as specific investment advice, only my opinion in broad generic terms, designed to provide a flavour of the markets and possible future outcomes based on the possible evidence at our disposal.
The value of investments can fall as well as rise and they are not guaranteed. Past performance is not a guide to future returns and you may get back less than you have invested.
If you are at all concerned about your specific situation and the investments you hold and you are not due a review soon, then you should contact us as a matter of urgency and we will review your attitude to risk and your portfolio to ensure it meets your requirements and is adequately protected from the prospect of a share market crash.