Will Greece exit the Euro? What does this mean for UK investors?

Greece continues to dominate the headlines with fresh turmoil as creditor power demands further austerity measures before releasing more funds to avoid an impending debt default.

By Glynn Bartley, Taylor Patterson.

Recently, the European Central Bank (ECB) has had to raise the ceiling on the emergency funds it is making available on an almost daily basis as Greeks have pulled billions of euros out of their bank accounts. Withdrawals have also been limited in Greece to just 60 euros per day.

European equity and bond markets have been reflecting the ever changing position with a great deal of volatility against a background of continuing support from the central bank in terms of its quantitative easing programme which will run until at least September 2016. However, the programme was established to provide enough liquidity for the European financial markets to aid a sustainable recovery and it remains to be seen whether, as a lender of last resort, it continues to keep Greece afloat. This would probably result in some form of capital controls with a potential unintended shortcut to a Greek exit.

The UK equity market has also been affected by the Eurozone’s volatility having retreated from its previous high point reached in April 2015. The main concern for UK investors is the anticipated hike in interest rates which has been pushed back with talk of deflation and a weakened recovery. However, an imminent rate rise is back on the agenda with the reason linked to the state of the employment market. With the rate of unemployment falling the labour market has tightened and increases in pay settlements are finally coming through.

Similarly, in the US, unemployment has been coming down rapidly, wage levels are improving and the housing market is in the fast lane. Prospects for a rate rise in the US as early as September 2015 have been mooted.

So what of the longer term outlook for markets and investors?

Taylor Patterson tends to find with macroeconomic events that the consensus is often too pessimistic. If there was a Greek exit from the Euro there would undoubtedly be significant volatility in financial markets, but after that we would probably see a strong rally in stock markets. This is also likely to be the case with rising interest rates even though they are expected to be gradual. Consequently any further weakness in both European and UK stock markets could be seen as a buying opportunity – in the end most market falls are.

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