Russell Investments implements (small) ‘buy’ on Greece
‘Deal or no deal’ turned into ‘deal’, and the odds of Greece staying in the eurozone have increased markedly. As expected, the three year agreement is far more stringent than the one rejected by the Greek population in the referendum. This means Tsipras is in for a tough time in the Greek parliament. However, To Potami sounds supportive and that should be enough to get the agreement through.
Our investment process has been indicating a small buy on European equities for some time, on top of a long running overweight position. We held back on implementing this due to political uncertainty, but we believe this tentative deal is now enough to increase slightly our overweight to European equities. Given the fact that the Eurostoxx 50 has already recouped 7.5% of the 14% peak-to-trough drop it makes sense to us not to add too much though.
All in all, this agreement seems to be more about France and Germany staying friendly than solving the Greek problem. Slippage in terms of reforms and privatisation is almost guaranteed, as well as disappointment with respect to Greek economic performance. The Greek issue will not go away but continue to haunt the eurozone for years to come with the review cycle as a drumbeat of bad news.
Wouter Sturkenboom is senior investment strategist at Russell Investments