Paras Anand, head of European equities at Fidelity Worldwide Investment, says Yes
The benign market reaction following Sunday’s referendum, and ultimately the increased probability of a Grexit, will strengthen the perception that systemic risk from such an event is modest.
While some have correctly suggested that spreads on sovereign bonds are being distorted by the European Central Bank’s repurchase programme, European equity markets remain substantially higher today in local currency terms than they were at the start of 2015.
This is despite a failing and drawn-out process to renegotiate the terms of support for the Greek economy and financial system. Alexis Tsipras insists that he wants a deal done, and the No vote is being interpreted as a rejection of the terms of that deal, rather than a rejection of Eurozone membership. But the question inevitably being raised is “who has the most to lose?”.
Given that the timing and nature of any deal are impossible to hazard at this point, the muted market reaction may be giving us a steer.
Adam Chester, head of economic research & market strategy at Lloyds Bank Commercial Banking, says No
The Greek government views the result as its mandate to secure a better deal. But creditors may not share that view. Despite limited reaction so far, there remains plenty of scope for financial volatility. The muted response may reflect market optimism that a deal can still be struck, the belief that contagion risk is limited, or the reluctance of investors to take positions given continuing uncertainty.
The direct exposure of international investors to Greece has fallen sharply. But the indirect fallout that may ensue if Grexit occurs remains substantial. Market reaction will depend on how events unfold over the coming days.
Without a deal, the euro is likely to come under more intense downward pressure, and borrowing costs in other highly-indebted European countries are likely to rise more sharply. The adverse consequences for the euro area and its currency could be long-lasting.