Before we get to some technical content, here is my take on what the No vote in Greece means for your personal economy.
Do not expect a quick resolution to the Greek uncertainty. Yes, the markets may move around, but that is the nature of markets. There may even be a market correction. We have had them before, and we will have them again.
But whatever the outcome, if you are working with us, you need to remember that your plan has been built around your personal situation – we call this your own personal economy. We know where you want to go.
The only time we get country specific where your financial plans are concerned is if it’s a country you plan to visit on holidays. Greece is a travel destination, not an investment destination. Don’t get country specific with your personal investment plans. We know what we can control.
The rest of the commentary is really just noise that fills the 24-hour news cycle.
Markets fell 1.5% yesterday and the headlines were Investors hit sell on Grexit fears. Now that markets have risen 1.8% today, do you think the headlines will read Investors hit buy after speculators got it wrong.
Maybe Greece will leave the Euro. Maybe they won’t. But please don’t lay awake at night worrying if it will hurt your personal plan. Of course, for those people that have been gambling that they could predict which way this mess will swing, well, that’s a different story.
Where is the overlap, and what is really important?
1) What just happened?
The Greek population voted over 60% in favour of REJECTING new loan terms offered by creditors. These new loan terms included pension cuts and higher taxes. The “NO” vote effectively means the Greek people are in favour of defaulting on their loan obligations.
2) What will happen now?
Lots of negotiation. Here is what you need to know:
The vote does not mean Greece will leave the Eurozone
The vote does not mean Greece will drop the Euro in favour of the Drachma
The vote does not mean Greece will be able to restructure its debt on more favourable terms
In short, the vote doesn’t resolve much at all! Investors should expect continued uncertainty about where Greece ends up over the coming days and weeks.
3) What does this mean for shares?
As we see time and time again, uncertainty brings volatility. We have seen increasing volatility in both Australian and global stock markets over the past few weeks. We have not seen debt markets shut, as they were in the GFC. Instead, we have seen debt become more expensive, particularly for riskier borrowers.
But with volatility comes opportunity, so it’s not all bad news.
Footnote: Thanks again to Macquarie Investment Management for the technical commentary and Behaviour gap for the graphic.