The current situation in Greece and market impact
The situation in Greece has escalated quickly in recent days with a referendum called for Sunday 5 July 2015. Whilst uncertainty was expected because of Greece, the situation changed rapidly and surprised markets as a result. This has led to financial market volatility and seen losses in sharemarkets across the world on Monday 29 June, including Australia and the US, as well as Europe. The Australian and US sharemarkets showed modest positive returns on Tuesday 3 June while European markets recorded further losses. Importantly, the impact on markets is currently coming from uncertainty and a lack of confidence rather than any direct economic impact.
Greece and its main creditors (the International Monetary Fund (IMF), European Central Bank (ECB) and the rest of the Eurozone) have been negotiating since January on the bailout agreement and the need for Greece to extend its austerity measures if it is to receive further payments. While there was a lot of optimism that a deal would occur, the Greek Prime Minister Alex Tsipras instead called a referendum for the Greek people to decide if they would accept these austerity measures. Greece will also miss its repayment to the IMF due 30 June 2015. Note: the referendum will not include a vote on whether Greece will stay in the Eurozone and keep the Euro.
This was unexpected and, as a result of pressures already building on its banking system, a decision was made to close Greek banks for the week beginning 29 June 2015 until after the referendum and a 60 euro limit was placed per day on ATM withdrawals. The Greek sharemarket is also closed.
Impact on Australia
- There are minimal direct economic linkages between Australia and Greece. The impact on Australia is centred purely on investor confidence through financial market volatility. It is important to focus on the stronger EU institutional framework and crisis management tools currently in place to help manage the worst case scenario over coming weeks. Currently the consensus is for the referendum to have a 'yes' vote and for negotiations to restart with Greece on a new bailout package.
- For Australia, the more important focus will be on how China and the US perform for the rest of this year. China is easing policy to help promote growth and the US economy continues to grow and the focus remains on the first rate hike by the federal reserve.
- For Australia, the Reserve Bank continues to stand ready to provide further monetary policy stimulus if needed.
CFS products with direct exposure to Greece
There are only a handful of investment options we offer across our investment, super and pension products that have exposure to Greece. Typically this exposure is less than 0.20% of the portfolio and in no case exceeds 0.80% of the portfolio. Please speak to your financial adviser or call us on 13 13 36 if you would like more information on a particular fund's exposure to Greece.
If you would like more information, please speak to your financial adviser or call us on 13 13 36, Monday to Friday, 8am to 7pm, Sydney time.
Colonial First State Investments Limited ABN 98 002 348 352, AFS Licence 232468 (Colonial First State) is the issuer of super, pension and investment products. This document may include general advice but does not take into account your individual objectives, financial situation or needs. You should read the relevant Product Disclosure Statement (PDS) carefully and assess whether the information is appropriate for you and consider talking to a financial adviser before making an investment decision. A PDS for Colonial First State’s products are available at colonialfirststate.com.au or by calling us on 13 13 36.