3 Investment Tips To Survive And Thrive In The Greek Crisis
We’ve worked out some steps you can take to survive, and even thrive, in the chaos.
Published on 14 August 2015
The bad news is that the Greek crisis can’t be isolated from the rest of the EU, and there will be a spill over effect. The good news is that every crisis can mean opportunity, assuming you’re prepared for it. We’ve worked out some steps you can take to survive, and even thrive, in the chaos:
If your portfolio has exposure to Greece or Europe, don’t panic and start selling just yet. A well-diversified portfolio, with a long investment horizon, is specifically meant to ride out situations such as this one. Remember that, if you join the herd and panic sell, there is a chance of incurring a capital loss (prices have probably already fallen at this point).
With regard to Europe, many experts consider Greece to be sufficiently ring-fenced (isolated) to prevent an immediate, major recession throughout the EU:
“There is certainly the possibility that Greece does exit the Eurozone, which would inevitably be complex and drawn out. A Grexit would likely drive some investors out of the EUR, and a powerful ECB liquidity response could also weaken the currency. Additionally, a stronger dollar and global financial instability are likely to delay the US Federal Reserve’s first rate hike, which in turn could slow the USD’s appreciation. However, even if those factors pushed EUR USD to parity, we think that at least over the next six months, Greece is sufficiently ring-fenced that contagion to other European countries and therefore a threat to the European growth story is unlikely.” – UBS Wealth Management, Chief Investment Office
The same report cites that: “We see the probability of success in containing spreads at current or lower levels on a six-month horizon at 85%.”
While it is not a bad idea to systemically lower your exposure to Greece and Europe, simply selling off everything as soon as possible is likely to be detrimental to financial goals. Speak to your private banker about your exposure to Greece and Europe, and have them explain what to expect. If you are still uncomfortable, they will be able to rebalance your portfolio appropriately. But whatever the case, don’t attempt to fix the problem by making rash, individual decisions to offload your assets.
(If you do not have a private banker, we can put you in touch with a qualified wealth manager for free. Just use our quick questionnaire).
While a Greek exit would introduce significant volatility into the markets, it is likely to be momentary. Some of the likely effects, such a falling Euro, might in fact provide opportunities to investors with cash on hand.
Private banking establishment C.Hoare & Co. are taking the position that:
“We would expect the ECB to then support the remaining Eurozone countries, reducing financial contagion and spurring an equity market rally after the initial negative reaction.
If this scenario plays out then once we believe the markets have taken the Greek exit from the Eurozone into consideration in its pricing, we may look to increase our exposure to European equities.”
In short, having some cash at the ready might convert this crisis into an opportunity. However, do speak to your wealth manager to ensure you have the right risk appetite – while there may be money to be made, there’s no point going for it if it means you won’t sleep easy.
One potential side effect of the Greek crisis is a flight from the Euro to the US dollar. This is not great news for American companies, as the strong US dollar coupled with weaker purchasing power in Europe could mean slower exports. You don’t want to be heavily invested in the affected companies, in the event of sluggish trade.
The real possibility of a falling Euro can be seen in disgruntled responses, to the prospect of products like Eurobonds:
“On the face of it, issuing Eurobonds and agreeing to fiscal union may seem like the obvious solution to Euro area troubles. But what does that actually mean? If you are German, it might mean that your balance sheet will be used to prop up the entire European balance sheet, which entails an unwelcome massive transfer away from you.”
– Huw Pill, speaking on the real cost of Grexit for Goldman Sachs.
Since Chinese markets are not doing too well either, it may be a good time to take another look at places like Singapore. Again, voice your concerns to your wealth manager – they will have the necessary data to help you make the call.