Greece fails to spook investors
For almost six years now, we’ve been following the Greece story. Waiting patiently for some sort of resolution and an answer to the question – will Greece default or exit the Euro? And with a negative outcome seemingly possible and not far away, we would expect the market to be getting nervous about the potential flow on effects for investments and the global economy.
Yet, instead of flocking to safety, investors have started shifting from the traditional safe haven of bonds to the more risky domain of equities. Last week we saw the 4th largest rotation out of bonds into equities in 6 years.
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Wealth Know How is the online network helping people manage their wealth through financial education. Whether you are looking for simple ways to better manage your cash, or you are after a complete strategy on how to save for retirement, we can help you understand your options. It is important to have a vision for your future, but its knowledge not dreams that will ultimately deliver financial success.
Published on 24 Jun 15
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For almost six years now, we’ve been following the Greece story. Waiting patiently for some sort of resolution and an answer to the question – will Greece default or exit the Euro? And with a negative outcome seemingly possible and not far away, we would expect the market to be getting nervous about the potential flow on effects for investments and the global economy.
Yet, instead of flocking to safety, investors have started shifting from the traditional safe haven of bonds to the more risky domain of equities. Last week we saw the 4th largest rotation out of bonds into equities in 6 years.Sponsor - Wealth Know How
Wealth Know How is the online network helping people manage their wealth through financial education. Whether you are looking for simple ways to better manage your cash, or you are after a complete strategy on how to save for retirement, we can help you understand your options. It is important to have a vision for your future, but its knowledge not dreams that will ultimately deliver financial success.
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Yet, instead of flocking to safety, investors have started shifting from the traditional safe haven of bonds to the more risky domain of equities. Last week we saw the 4th largest rotation out of bonds into equities in 6 years.
And so it would appear the markets are not very concerned with the risk posed by Greece. Perhaps the market doesn’t consider the risk big enough; or perhaps people are simply tired of hearing the story for such a long time that the fear is dwindling. Perhaps it’s a combination of both.
Despite the recent shift from bonds to equities - equity prices throughout the European region have been dropping over the last fortnight.
A further 10% drop in the Euro Stoxx 50 would bring its total decline since mid-April to around 20%. Similar to the size of the pull-back experienced at the peak of the last Greece crisis in the spring of 2012.
But we doubt the slide in equity prices will last long - Why?
Firstly, we expect the Euro will remain weak, which in turn will bolster expectations for profit margin growth in the euro-zone. And also, we don't foresee the performance of equities elsewhere in the world acting as a major drag.
This includes the US, where recent data showed economic growth momentum and a pickup in inflation. The odds of a September rate rise are looking more and more likely, with 80% of fund managers expecting a hike before the end of year.
Fed officials also left their interest rate projections for this year unchanged at last week's meeting - suggesting that the FOMC is still on course for a September rate hike.
These FED projections imply rates will rise twice this year – presumably at the September and December meetings.