Greece 'Chaos' Opens Buying Opportunity
The ongoing Greece debt drama isn’t likely to cause a contagion that will topple dominoes in Europe, bounce across the Atlantic and send shockwaves through the U.S. banking system. Nor is it viewed as a likely catalyst for a prolonged stock market tailspin.
What it is doing is causing uncertainty, lots of it. Indeed, after Sunday’s decision by Greek voters to overwhelmingly reject another austerity program imposed by European fiscal leaders, no one can predict with any clarity where the situation is headed.
“This issue has been so slow-rolling and its presence has been felt for much of the year that the Greek voters’ rejection of continued austerity seems, for now, an anti-climax,” one trader said Monday.
“The general sense is a recognition that the economy of Greece is one of the lesser cogs in a Eurozone that can continue to chug along even as Greece itself sputters,” the trader added.
In other words, as the situation stands today the worst fallout is still expected to be limited to within Greece’s own borders. But if no compromise repayment agreement is reached in the next few days and the virtual shutdown of the Greek economy and banking system causes unrest on the streets to become more widespread, then its effects on U.S. markets “may become more pronounced,” the trader said.
Market Volatility
What is certain is that all this uncertainty is causing market volatility, which for savvy traders can mean a buying opportunity.
Markets have been bouncing up and down in during recent sessions, mostly on news out of Greece. Earlier last week stock prices tanked on the realization that Greece was likely to default on its latest payment to the International Monetary Fund. Later in the week, prices rose a bit on the belief that Greece’s problems wouldn’t spread too far beyond Greece.
Monday’s down market – the Dow Jones Industrial average was down 45 points at 12 p.m. EST – was blamed on the Greek referendum and the uncertainty that arose in its wake.
Nigel Green, CEO and founder of DeVere Group, an independent financial advisory firm, predicted an immediate future of “extensive negotiations” between Greek leaders and their creditors, talks that will likely lead to “a degree of debt relief for Greece.” However, European fiscal leaders won’t be in a rush to concede too much to Greece, fully aware of the “considerable consequences of softening their stance too much,” Green added.
“In the wider scheme, it remains unclear what has been ultimately achieved at this stage – except more chaos,” he said.
Sell-Off Silver Lining
“This chaos will mean that investors will be braced for more turbulence and there could be a stock market sell-off over the coming days as investors seek perceived safe havens such as gilts and U.S. treasuries,” Green predicted.
Furthermore, the short-term sentiment by investors might be that voters in other debt-addled European nations such as Spain and Italy could follow the lead from the vote in Greece on Sunday and come out against austerity programs imposed on their countries by Eurozone leaders, which could contribute to the sell-off.
“This predicted stock market sell-off and the resulting drop in prices will, of course, create an important buying opportunity, especially for investors with a longer-term perspective,” said Green.
“With negotiations potentially taking an extended period of time, the uncertainty is likely to be protracted, meaning the sell-off and buying opportunity could also last some time – unlike last week when markets bounced back quickly,” he added. “The buying opportunity will be seen as particularly attractive as much of the Eurozone is in recovering mode.”