Early in 2015, Alexis Tsipras, the Prime Minister of Greece engaged creditors to a game of chicken consequently damaging the rally of European stock that has added over $ 2.17 trillion in share prices in the first quarter of the year. According to equity managers familiar with the situation the situation shouldn’t have gotten to this point of almost parity with U.S dollar.
David Joy, the Principal Market strategist with Ameriprise Financial Inc., which oversees $ 815 billion, said “that at the moment, there is no possibility of having a ‘no’ priced vote. He added that in case one is obtained, there will be another row of downhill instability more than what was obtained”.
On 29th June, the 50 index Euro Stock went downhill by 4.2 % and at the same time, the 500 Standard Index got its largest fall. This was more than one year following the sudden referendum which was called by Tsipras regarding the proposed austerity measures imposed by Greek creditors. Concerning the vote, the nation will now be a step nearer to euro’s exit, the possibility that pushed equity volatility to a three years peak.
On Friday, a poll that was commissioned by the news at Bloomberg revealed that more than 43 % of Citizens in Greek are expected to vote against severe conditions whereas 42.5 % will support the affirmation. Even while the rejection support declined by 52 % just a week ago, the Greece crisis enhanced the efforts of Central Bank of Europe to raising the currency’s confidence.
The AG at Credit Suisse Group estimated that 75 % is the possibility of Greece leaving the euro with a ‘no’ vote. The biggest hits were taken by Italy and Spain after the announcement of the referendum dropping the most in the developed markets to more than 5% losses. In just 5 days, stock swings jumped by 21%. Today, the 50 Euro Stoxx is down by 10% from a high of 7 years in April.
The reaction in the market has not been as bad as it was in 2010 when the first bail out was received by Greece. In less than 6 weeks, the 50 blue chip companies in euro went to a 17 % low during that year.
According to the Goldman Sachs Group Inc. on 2nd July, there will be a short lived volatility of equity due to rejection of terms of bail out. According to them, this scenario may trigger investors to purchase equities in Spain, Italy and German.
In the views of David Kelly of JP Morgan Funds that manages $800 billion, the situation went out of hand due to mistakes from both sides. Kelly added that “by forcing the Greek people to an austerity level of managing in difficulty, Europeans are not only unfair but also unkind”.
If the bailout terms are rejected by voters, it would be impossible for Greece to immediately leave the euro. To keep afloat its financial system, it would start printing its own currency. The country may run out of cash and be forced to make a 3.5 billion euros bond payment to the ECB.