The crisis in Greece is at its peak right now. If Greece is in the utmost consequence state bankruptcy and must leave the euro, this will mean falling short-term interest rates and share prices. Property Management expects the process to continue next week and reach a temporary solution, but it can go both ways, and the Investment Committee is ready to intervene quickly to protect the portfolios.
The Investment Committee’s Investment Committee takes the acute crisis around Greece’s economic problems with vigilant concern. A probable scenario is a form of technical suspension of payments, without Greece having to leave the euro. The rest of June and into July will determine whether the game currently underway between the Greek government and the EU ends up with some form of postponement, or if it is hard to fight against, and a state bankruptcy becomes a reality.
If there is no agreement that solves the problems temporarily, the financial markets will be affected quite considerably. The short-term interest rate will fall further, while the shares will fall. The falling short-term bond yields will be positive for the asset management’s bond portfolios, while equity declines will be negative for the equity portfolios.
The Investment Committee has chosen not to currently hedge against a possible stock fall. This is because the situation can easily go both ways. In addition, the equity portfolio is deliberately designed in a way where it is relatively expected to perform well during periods of declining markets.
On the one hand, there is a latent risk of a 10-15 percent equity decline, and the investment committee is in high alert and ready to either reduce the equity portion or invest in financial instruments that can protect the equity return.
But on the other hand, a clarification and thus a temporary agreement will lead to a rapid increase in the shares, and the investment committee does not want to discard the possible gain at this time. In fact, it may turn out that the current stock turmoil can be an attractive buy option in the longer term.
Of course, how long and lasting the uncertainty about the situation in Greece is uncertain. Therefore, be prepared for the secondary financial effects of a Greek bankruptcy for all investors who own Greek government bonds/assets. These effects may spread to the rest of the world.
However, it is expected that these credit risks are identified and that the governments of Europe and the European Central Bank have clear plans for resolving these problems. But there is no doubt that a possible state bankruptcy will be a disaster for the Greek economy and for the Greeks, and it is uncertain how such a crisis will unfold week by week.