No panic in the euro area
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29 June 2015
Posted in
Special research
In an additional poll carried out spontaneously on Sunday we have captured the most recent sentiment as well as investors’ assessments on the current capital market situation. With this survey we have investigated not only financial mar-kets matters but also investors’ political perceptions.
Please find here the most important conclusions:
- The Grexit probability has NOT risen significantly after the announcement of the referendum. Compared with the regular sentix Euro Break-up Index as of June 26th, 2015, it has just slightly increased from 48.4% to 51.0%!
- Those who think that a Grexit is likely do not expect a last-minute rescue. For these investors the road to Grexit is set. In contrast, of the rest of investors 75% assume such a last-minute turn for the better will happen. As a result, only very few market participants think that a Grexit can be avoided without such an important political gesture!
- Investors who expect a Grexit think that this event is going to strengthen the euro (65.6%) while in the case of a “soft compromise” the majority anticipates a weaker common currency.
- More or less all investors (68.9%) agree that the ECB must stop ELA financing. Yesterday’s decision not to again lift the ELA ceiling is thus the adequate consequence – but from an investor’s viewpoint also the minimum re-striction.
- If the sentix survey participants were Greeks they would not follow Prime Minister Tsipras. This is a ray of hope that the domestic political pressure on the Greek government will mount and force it to give in. Furthermore, this could be a hint that the referendum will result in a vote against the government and for Europe, especially as po-tential consequences of a default, for instance via the current capital controls, will now be “lived” by the popula-tion.
- It is in a way shocking that investors have already come to terms with high write-downs in Greece. 91% of survey participants expect a cancellation of Greek debt of at least 40%, on average investors expect a loss of more than 70%!
- Despite the current developments investors polled by sentix still show a high degree of solidarity and are for measures to support the Greek people even after a default. Here, highest priority do have a continuing EU mem-bership and humanitarian help (food, medicine) – while pensions, energy imports and current income should not be financed via this kind of aid package.
- Such help should lead to enormous further transfers. According to our poll, Greece will need another EUR 30 bn within the next twelve months.
- Short-term, investors expect marked losses for risk assets, especially for Greek stocks and bonds. But investors also see euro-zone shares and the EUR-USD exchange rate much weaker. In contrast, bunds and gold should benefit.
- With a view of 3-6 months investors have a completely different picture: euro-zone stocks should rise, for EUR-USD “Greece” should turn out as a non-event. And the expected short-term strength of German government bonds should reverse until autumn. Let alone the price of gold should confirm its expected short-term upward tendency.
- While investors do not expect a contagion stemming from a Grexit or a Greek default (see current reading of the sentix Contagion Risk Index standing below 25%), they nevertheless remain very cautious when it comes to in-vesting in government bonds of the periphery. Short-term, this is due to negative news flow, but medium-term this is just the consequence of the expectations of rising yields, also for German government bonds.
The (German version of the) exact questionnaire as well as the complete survey data can be found under:
https://www.surveymonkey.net/results/SM-WPG37KPD/
