The ongoing Greek debt negotiations and the possibility of a ‘Grexit’ from the euro have dominated both the financial and mainstream headlines over recent weeks – and understandably so.
FE data shows Greek, European, UK and global indices have all been in freefall over the last month and a further plot twist was added to crisis in the form of a special referendum held in the country over the weekend, which resulted in a decisive rejection of further austerity measures in exchange for an emergency bailout.
Performance of indices over 1 month
Source: FE Analytics
The result has strengthened Syriza’s domestic political standing and seemingly pushed Greece further towards an exit from the eurozone, with finance minster Yanis Varoufakis handing in his resignation earlier today.
While there is still the glimmer of hope that a deal can be struck between Athens and its creditors, as it stands Greece owes more than €320bn, the Greek people are restricted to withdrawing a maximum €60 from cash machines and close to 60 businesses (on average) have gone under every day so far this year. All told, the Greek economy looks to be in dire straits.
With that in mind, we round up the opinions of leading industry experts on what the ramifications of the referendum and the heightened possibility of a ‘Grexit’ mean for UK investors.
“Greece could be the factor that finally pierces market complacency”
While Jason Hollands (pictured), head of communications and business development at Tilney Bestinvest, says Greece is only a very small player in the global economy and market, the increased likelihood of a ‘Grexit’ could be the trigger for a much larger, and long-overdue, correction. 
“The real issue here is however one of market sentiment and whether the Greek debt crisis translates into a broader bearish narrative,” he said.
“We’ve been of the view for some time that there has been too much complacency in markets. Investors have benefitted from ultra-lose conventional and extraordinary monetary policy, which have certainly been supportive of asset prices, propelling bond and equity valuations ever higher.”
“The latest phase in the Greek debt crisis will undoubtedly provoke market further volatility. When combined with the aggressive sell-off in Chinese equities and growing expectations of US rate rises, these risks combine into a more generalised swathe of bearish sentiment that ricochets around the globe as institutional investors and traders move to take further ‘risk off the table’.”
“Grexit unlikely to spark financial contagion”
On the other hand, Columbia Threadneedle head of asset allocation Toby Nangle says the ramifications of the ‘no’ vote could be disastrous for the Greek economy, but the chances of a ‘Grexit’ having a domino effect across global financial markets are limited.
“From a market perspective, it is a challenge to understand the prospective channels for contagion,” he said.
“Financial market contagion typically spreads when assets that are understood to be risk-free turn out not to be so. For example, when currency pegs previously understood as invulnerable break, when AAA-rated securities are revealed as worthless, when risk-free government debt becomes risky [or] when systemically-important banks with involvement across the financial system fail.”
“Greek assets are not widely held across the private sector following the efforts in 2011 by European states to transfer privately-held Greek debt into publicly-held Greek debt. In bailing out private sector bondholders in 2011, the original Greek bailout largely severed the traditional channels of contagion.”
“Those channels of contagion that persist are political and sentiment-based. Both are harder to analyse.”
“We do not believe the crisis poses major immediate risks”
Stephanie Flanders, chief market strategist for Europe at JP Morgan Asset Management, has a similar argument to Nangle as though she is concerned that the results of the referendum are likely to be extraordinarily costly for Greece’s people and its economy, she sees no reason why it will cause a significant crash in global markets.
“We do not believe the crisis poses major immediate risks to peripheral economies, the European financial markets or the eurozone recovery, all of which are now much less exposed to and better equipped to deal with Greek contagion than they were in 2011 and 2012,” she explained.
“In theory, at least, the ECB also has much more effective tools available now to deal with any tightening of financial conditions that results from the Greek vote. Policymakers have signalled previously that they stand ready to make use of those tools, should market conditions warrant it.”
“Greek stress has created a buying opportunity”
In fact, Trevor Greetham (pictured) – head of multi-asset at Royal London – thinks that investors should use the currently hostile environment as a signal to put more money into the market. 
“Greece's democratic rejection of the austerity spiral casts serious doubt on the long-term political viability of the euro area – especially if Greece leaves the euro, devalues and eventually regains control of its destiny in the way Iceland has,” he said.
“This is a long-term story, however. In the shorter term it is hard to see developments in a country making up about 1 per cent of European Union GDP and one tenth of a percent of its stock market capitalisation having a lasting impact on world markets.”
“In fact, with investor sentiment towards the depressed end of the range, Greek stress may be creating a short-term buying opportunity for global stocks. The fundamentals are positive. Monetary policy globally is still very loose and the drop in energy prices over the last year should underpin a continued expansion in the world economy.”
“We’ve been buying on weakness”
Michael Staines, investment director at Heartwood Investment Management, has gone a step further than Greetham though. While he fully accepts the risks involved, he has already used the referendum as a buying opportunity.
“It is difficult at this point to predict the outcome, but we believe that pragmatism will prevail to prevent the worst case scenario of a disorderly Greek exit. The EU has shown it can see its way through difficult decisions, not least in shoring up confidence in 2011 and 2012,” he said.
“Meanwhile, systemic banking risk across the region has been mitigated through the stress tests in 2014 and balance sheet repair.”
“Market risk levels will remain elevated, benefitting core government bonds markets and keeping equities volatile. But as stated, this is not 2011 and we expect euro periphery contagion to be limited. As investors in European equities, we are overweight and added on weakness last week.”
