Greek election fails to reassure asset managers

Greek parliament1Asset allocators said they remained cautious despite a brief rally in the markets after the centre-right New Democracy party won the most votes in the Greek election on Sunday.

Trevor Greetham, director of asset allocation at Fidelity Worldwide Investment, said the election result was good news as it ought to enable a coalition in favour of reform and austerity, thereby keeping Greece in the eurozone.

“However, a new Greek coalition government is unlikely to be able to restore economic growth or deliver effective reform without substantial financial help from the rest of the euro area,” he said.

“It will take substantial action from the world's largest central banks to turn the global growth cycle back up again. In the meantime, we remain cautious on stocks and commodities, preferring gilts, global property and cash in our multi asset funds.”

Outgoing head of the World Bank, Robert Zoellick, warned that mishandling of the Greece problem could lead to a “Lehmans moment” - an event, like the bankruptcy of Lehman Brothers in September 2008, that triggers a global financial crisis.

Commentators agreed that the Greek election reduced the risk of such an event, but they also echoed the view that the results would yield only a temporary fillip.

“After initial relief, markets are likely to remain in wait-and-see mode and are likely to realise this Greek election result is unlikely to be a significant turning point,” said Barry Norris, partner at Argonaut Capital Partners.

“Southern Europe and eurozone banks remain too risky. Blue-chips with strong balance sheets, superior business models and attractive dividends remain the stand-out investment in financial markets."

It is too early to say whether the Greek election will have an effect on fund flows. The second week of June saw the biggest weekly redemptions in European bond funds since last year, according to data provider EPFR Global, while European equity funds suffered outflows for the tenth time in twelve weeks.

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