Greek debt crisis- what should investors do?

18th June 2015


The troubles engulfing the eurozone are on the rise given that Greece now has less than two weeks to come to an agreement with its creditors.

If the economically challenged nation fails to do so, it faces defaulting on its €1.6bn loan repayment to crisis lender, the International Monetary Fund.

While the majority of UK investors have little direct exposure to Greece, they do however have considerable exposure to Europe, where sentiment is clearly sensitive to the twists and turns of the ongoing Greek saga.

Fund broker Hargreaves Lansdown notes that UK shares are also susceptible to setback, seeing as Europe is Britain’s largest trading partner and economic distress over there is inevitably going to ripple across the Channel.

READ MORE: German Chancellor Angela Merkel believes Greece can still reach a deal

Indeed the UK market has followed European counterparts down in the recent sell-off. The FTSE 100 has fallen 5% since the beginning of June, as has the Eurostoxx 50.

Hargreaves Lansdown estimates the typical UK pension fund has around 15% invested in Europe and around 35% invested in the UK. According to trade body, the Investment Association there is £55bn held in funds investing across the Europe.

But Mark Dampier, head of research, at Hargreaves Lansdown  has urged some caution given that macro-economic events and their consequences are incredibly difficult to call.

He said: “You can use up an awful lot of grey matter fretting about Greek debt, US interest rate rises, or the Chinese slowdown. Since the financial crisis in 2008 we have had all sorts of commentators telling us that the end of the world was nigh. In fact the eventual outcome for the global stock market so far has been a six year bull market which many investors have missed because of their worry about these issues.

“In times of stress like these, it’s best to avoid any knee-jerk reactions. Indeed when there is weakness in stock markets it’s usually the time to buy in, not sell out. This is particularly the case when cash in the bank is attracting such feeble interest.”

But Dampier highlighted that the Greeks have lost a key bargaining chip, “because a default no longer threatens to bring about a systematic collapse of the European financial infrastructure”.

He added: “The European Central Bank is also pursuing a policy of full-blown quantitative easing of €60bn per month. Any run on the sovereign debt of euro members outside Greece will surely be met by huge buying from the ECB. This, in effect, could safeguard the European banks who have huge amounts of this debt on their balance sheets.

“An awful lot of commentary on the matter suggests a Greek exit. This may prove correct, though we tend to find that the consensus is often wrong on big macro-economic issues. In truth no-one knows what the eventual outcome will be for Greece, and there will no doubt be continued volatility in financial markets while this all plays out.”

1 thought on “Greek debt crisis- what should investors do?”

  1. David Lilley says:

    Why didn’t Madame Lagarde finish her sentence? “If Greece does not pay up on the 30th June there will be no period of grace, it will be a default (followed by a rye smile).”

    Are we all supposed to know the consequences of an IMF default? Couldn’t she just have enlightened us?

    We will just have to guess as we have had to guess the next move for the last 5 or 6 years.

    I guess that the IMF committee that sanctioned the loan know the consequences of default and that their contract with Greece explains the consequences of default. Can you have a contract with Greece?

    Let’s continue to guess.

    Could it be that there is collateral involved and the IMF will take that collateral in lieu of payment? I don’t think so.

    Could it be that Greece will not have future access to IMF (lender of last resort) funding? Definitely. And I also think that no other EZ/EU country will have access to IMF loans in the future.

    Going forward.

    Why do the Greek PM and finance minister laugh and grin the whole time?Why do they behave so cool, without ties for example? Everyone watching them on TV has taken a financial hit from them. Even Brits have lost money as they are a contributor to IMF funding. They could at least try and look the part of “please spare a penny as I have a wife and kids to support”. Is it because they know that they have a strong hand? Definitely.

    The EU will not let a self made Greek tragedy become a catastrophe bringing undeserved shame on the EU plan. But they cannot write off Greek debt as the other peripherals will want their loans written off too.
    But if the two remaining members of the troika give them further EU taxpayers money, as they must, it will be good money after bad. They might have to think about paying benefits directly rather than giving bailout funds to corrupt Greek officials who have already demonstrated their willingness to have enemy (Russian or Chinese) bases on our doorstep.
    The moral of the story is that you don’t give family members loans. You bite the bullet and give them hand-outs just as the UK does to Scotland, N. Ireland and Wales.
    These are just my guesses for want of visibility.

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