Greece votes ‘No’.

6th July 2015

Ian Copelin, Investment Director, my wealth comments “Given the Greek government campaigned for a “No” vote, with the Greek Prime Minister, Alexis Tsipras, making several televised addresses to the nation asking voters to reject demands for more austerity, Greek voters’ rejection of austerity wasn’t a surprise and consequently has had very little impact on markets this morning. The FTSE-100 is currently down 16 points (0.24%) at 6,570, while the yield on the benchmark 10 year UK Gilt is down 2 basis points to 1.976%.

Whilst Alexis Tsipras claimed the referendum was about austerity, in reality the vote was about Greece’s place in the euro area. And with European leaders showing no immediate willingness to compromise (especially as Portugal and Ireland accepted similar measures and have since emerged from their own bailout programs) and the Greek government’s rejection of their conditions for staying in the 19-member currency union, Greece’s exit from the currency union must now been seen as the base-case scenario (although a Greek exit from the euro appears more likely than not, the situation is currently very fluid and maybe helped by the resignation of the confrontational Greek finance minister, Yanis Varoufakis).

Consequently, I would expect that the European Central Bank (ECB) will continue to provide limited emergency liquidity to Greece’s financial sector, but it is highly likely that the banks will run out of cash over the coming days (and consequently, I would be surprised to see the banks open tomorrow as planned). In addition, the limit on bank withdrawals (currently €60) may be reduced, while the introduction of rationing of food and medicine can’t be ruled out.
Given the psychological scars of the 2008 financial crisis it is very easy to become obsessed with negative media commentary and be very short-term, however, at my wealth, risk management is as important as investment returns and we manage well-diversified portfolios (no-one is overly exposed to any one geographic region or investment theme) on behalf of our clients to create real returns over the long-term. Moreover, I do not see this as similar to the collapse of Lehman Brothers – a ‘Grexit’ should be well contained, as Greece accounts for less than 2% of eurozone GDP, coupled with the fact that much of Greece’s debt is now held by the public sector.

Greek economic hardship could be positive for the rest of Europe as I would expect to see support for anti-austerity and anti-European parties fall (this is good news given we have elections in Portugal and Spain later this year), while at the same time there will be more pressure on the established governments to continue with their structural reforms.

As a longer-term investor, I do not change client portfolios or the way I manage our clients’ life savings on short-term noise and uncertainty – whilst I am wary of the current short-term volatility, I am alert to the potential opportunities (global central banks continue to be highly accommodative and I believe this tailwind should continue to boost global economic growth) and I believe that Europe looks attractive with or without a Greek deal.”