3 Considerations for Singaporean Investors Now that the Greek Crisis is Over

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3 Considerations for Singaporean Investors Now that the Greek Crisis is Over

While Greece itself may not be big on the Singaporean radar, the health of the European Union (EU) is.

Published on 22 July 2015

As the EU’s largest trading partner in ASEAN, Europe is pertinent to our export driven economy. And for the past decade, it  has been a favourite market for local investors. But in the aftermath of the Greek crisis, is it too early for Singaporeans to turn their eyes to Europe again?

As far back as 2012, Deputy Prime Minister Tharman Shanmugaratnam warned in Parliament that:

Nonetheless, should there be further, significant deterioration in the economies and financial markets of the Eurozone, the Singapore economy will not be insulated. The spill over effects will manifest largely through the trade and financial channels. The trade-related sectors, including manufacturing and transport, are likely to be the most adversely affected.

There could be some pullback in credit amidst heightened risk aversion, and financing costs could rise. In the financial services sector, sentiment-driven activities such as stock broking and foreign exchange trading could also see a decline in transaction volumes.”

But three years ago, we perhaps did not realise how far the situation could deteriorate.

Investing in Europe may seem like a good idea, now that the Greek crisis is over. But there are factors that investors still need to consider:

  • The spat between the IMF and EU is a good indication that the Greek Crisis is not over
  • The overall situation is contributing to keeping gold prices low
  • European shares are already closing higher, so would-be opportunists may be late

01.

The spat between the IMF and EU is a
good indication that the Greek crisis is not over

It does not bode well that the IMF openly disagrees with the reforms imposed by the EU. By this we are not making a qualitative statement about the effectiveness of the EU’s proposed reforms – it is simply that the IMF and EU spat has impeded the resolution to the crisis on a political wavelength.

Greece’s ruling party, Syriza, was elected on the basis that they would fight austerity measures. The Greek Prime Minister, Alexis Tsipras, is now widely seen to have betrayed the Greek public due to his acceptance of the EU’s proposed measures. But with the IMF now revealed to also have been against EU reforms, anti-austerity groups have a lot of fuel to keep their fire going.

In the very high chance that the Greek people fight reforms again, it is unlikely that Tsipras will be around to sign another round of concessions. The situation is thus not so much resolved as it is prolonged. It is difficult to say, with any firm conviction, that investments in the EU are significantly safer than they were before.

02.

The overall situation is contributing to keeping gold prices low

The gold flash crash on Monday (20th July 2015) send gold prices down by 4%, to around the same levels in March 2010. The main instigator was not the Greek crisis – it was an unknown entity placing 5 tonnes of gold on the market within a two minute window. However, the situation in Europe may be contributing to large gold sell-offs, and lower confidence in gold.

As gold is seen as a “safe haven” asset, its prices tend to rise in the wake of financial crises. Gold had a lot to gain from the EU’s naysayers, who predicted a Greek departure followed by breakaways from other states (Italy, Portugal, Spain, etc.), and a weakened EU that would lead the way to a global recession.

With the situation in Greece put on hold, coupled with a recovering US economy and rising US dollar (gold has an inverse relationship to the greenback), gold prices may be pinned in place for a while. Bad news for anyone with gold assets (although if you have a long term view you won’t mind), and interesting news for anyone with cash to spare. Speak to your wealth manager about the possibilities of gold investments, as you are likely being presented with an opportunity here. Your private banker will be able to determine if this is a good fit for your portfolio.

If you need to speak to a financial expert about his, we can put you in touch with one in minutes. Just use our fast, free questionnaire to find the right expert.

03.

European shares are already closing higher,
so would-be opportunists may be late

The general assumption is that Europe must be cheap right now, with the turmoil in the EU. But recovery may have happened a lot sooner than expected – following Greek acceptance of the reforms (16th July 2015), European markets already closed sharply higher. The Stoxx 600 closed 1.3% higher, and the FTSE 100 closed 0.6% higher.

But we relate you again to point 1: the situation is more prolonged than it is over. If you are attempting to time the market – jumping into Europe because it seems cheap right now – you risk entering when prices have already risen, and getting caught upon the second episode of this ongoing crisis.

Do remember that a large part of wealth protection is having a long term strategy and sticking to it, not reallocating assets to chase apparent opportunities. Again, speak to your wealth manager about whether Europe is a risk you can afford to take, whatever media pundits and contrarian investors may tell you*.
(*Via the simplistic logic that all crises mean value buys, we should all have been diving into the US equity market immediately following the Lehman Brothers collapse. That wouldn’t have paid off then, and we shouldn’t assume the same approach would pay off now).

Will you invest in Europe right now? Share it with us and we could run it past our experts for a qualified opinion.

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