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Fund houses warn on volatility from Greece impact

Increasing uncertainty around Greece and the probability of an exit from the Eurozone has raised the alarm at several fund houses about a surge in market volatility.

Here are several views on Greece and its impact on markets, asset classes and allocation:


Edmond De Rothschild

 “Any breakdown would take us even close to a scenario in which Greece leaves the Eurozone, and that would cause market volatility to rise.

“We should remember, however, that a breakdown would no doubt prompt ECB intervention -in the form of QE extension or acceleration- to calm markets down and it could also trigger strong political moves like the launch of Eurobills to reinforce integration within the Eurozone.

“With this in mind, we are sticking with our equity overweight, especially in Europe.

“Further to our recent decisions to deal with fresh volatility, we have maintained our positive bias on the US dollar and on our tactically reinforced duration via core Eurozone government bonds.”


Stephanie Flanders, chief market strategist for the UK and Europe at JP Morgan Asset Management

“With this ‘no’ vote we have moved firmly onto the Grexit side of the decision tree, with a messy Greek exit now more likely than not.

“We can expect this to cause volatility and sell-offs in European markets and potentially [lead to] very serious long-term political implications for Europe.

“However, assuming that policymakers respond reasonably decisively to signs of contagion, we do not currently believe the result poses a broader risk to European investors or the European recovery.

“We do not believe the crisis poses major immediate risks to peripheral economies, the European financial markets or the eurozone recovery, all of which are now much less exposed to and better equipped to deal with Greek contagion than they were in 2011 and 2012.”


Mathew Rubin, director of investment strategy at Neuberger Berman Asset Management

“Although the result of the referendum in support of Prime Minister Alexis Tsipras’ hardline stance does not guarantee a Greece exit from the Eurozone, the risk of such a scenario has greatly increased.

“At the very least, investors should be prepared for a prolonged period of uncertainty that is likely to be accompanied by heightened volatility in the near term.

“Considering the surprise and magnitude of the referendum outcome, the ECB is likely to be put to the test.

“Should we see a significant dislocation, particularly in the fixed income markets, we expect ECB President Mario Draghi to step to the plate and use all available instruments such as increased/prolonged QE, Outright Monetary Transactions (OMT) and potentially new initiatives such as caps on peripheral country sovereign bond spreads.

“We believe tense market environments that we are likely to find ourselves in in the following weeks also warrant a diversified approach that incorporates lower volatility investment solutions that can be found in asset class segments such as fixed income and hedge funds.”


Giordano Lombardo, group chief investment officer, Pioneer Investments

“This [initial] market response is probably a combination of two factors. Firstly, that the market thinks some hope remains for an agreement that keeps Greece in the Eurozone and prevents the collapse of its banking system.

Secondly, that a scenario of a widespread contagion is considered unlikely thanks to the tools that the ECB is ready to put in action to protect European financial stability.

“Investors should consider dealing with the current market phase with a largely defensive approach.

“It’s too early at this stage to take any drastic action, as all the scenarios above are based on a political decision process that is extremely difficult to forecast, and, with the impact of each scenario itself, unpredictable.

“The probability of Grexit has increased and while it is to an extent already priced in the market, the broad political implications are still uncertain.”


AXA Investment Managers

“Markets are likely to remain undecided until it becomes clear that negotiations for a bridge loan or a third bailout have started in earnest. Once there, volatility is due until a deal appears, that is, probably, until 20 July.

“If and when an agreement is in the offing, markets will turn their attention to the next key topic: the Fed’s policy.

“But in the event of either a perceived disagreement between Germany and France or, even worse, of a default on 20 July, the euro and risk assets, including periphery bonds, would be hammered again until the ECB and euro area policy makers show their hand.”


Toby Nangle, global co-head of multi asset and head of asset allocation for EMEA at Columbia Threadneedle Investments

“With regard to sentiment, the question we have continually asked ourselves has been to what extent developments in Greece negatively impact business confidence, consumer confidence and credit conditions elsewhere in the Eurozone.

“We continue to forecast a pick-up in European economic growth and see no evidence that these important measures of sentiment that inform economic behaviour have been dented sufficiently to knock our positive expectations off-track. If we see evidence of this, we will need to tread more carefully still with investment positions.”

Part of the Mark Allen Group.