4 Experts: Positioning For Selloff As Greece Says No to Europe -- Barron's Blog

        By Dimitra DeFotis
        With a majority of votes counted, it's looking like Greek voters cast their lot against Eurozone austerity, and for the leftist Syriza government and an uncertain financial future.
        The unofficial result from the Greek interior ministry: 61% of voters said No to the referendum, with more than half of the votes counted as of midnight in Athens. While the vote is a victory for the leftist Greek government, investors and Greek citizens are sure to be losers in the near term.
        "If this historic "no" win is confirmed, look initially for a general selloff in global equities, along with price pressures on the bonds issued by Greece, other peripheral Eurozone economies and emerging markets," wrote Mohamed A. El-Erian on Facebook Sunday afternoon. He is the chief economic advisor at Allianz.
        Teneo Analyt Wolf Piccoli sees Grexit as a real risk. And he thinks that unless the European Central Bank increases emergency liquidity, Greek commercial banks could run out of cash Tuesday and collapse. Last week, trading was halted on three Greek banks that trade over the counter in the U.S.: Alpha Bank ( ALBKY), Eurobank Ergasias ( EGFEY) and Piraeus Bank ( BPIRY). Shares of the National Bank of Greece ( NBG) continued to trade, but its shares along with those of Alpha Bank and Piraeus bank are each down more than 70% in the past 12 months; Eurobank Ergasias is down 86%.
        El Erian said it is unclear if Greek politicians will have enough time to "get thir act together" given "already horrid conditions on the ground, including the high likelihood of further delays in re-opening the banks and significant difficulties getting fresh money into ATMs."
        UBS Wealth Management Chief Investment Officer Mark Haefele writes:
        "We expect a near-term sell-off in Eurozone equities as events unfold. However, we believe that an overweight position in Eurozone equities is still warranted over our tactical 6-month horizon. We believe that the European Central Bank (ECB) will be able to mitigate contagion if necessary."
        Barclays economists and asset allocation gurus warn that while their recent client poll predicted a yes vote in the Greek referendum, "time and again, markets have underestimated the negative outcomes on Greece. They note that the Greek exposure of other Economic & Monetary Union [EMU] member states and the Eurosystem amounts to nearly 3.5% of euro area GDP, while exposure of European banks to Greece has fallen to less than one-tenth of that. That means "direct losses should be manageable. Contagion would be the main concern." Barclays Economist Francois Cabau et al expect weakness in peripheral credit and in the euro:
        "EUR/USD has opened about 1% lower and safe-haven currencies have rallied in response to the likely "no" result. The now high probability of Greece's leaving the EMU is unambiguously negative for the EUR in the near term as currency markets reassess the stability of the currency union and the prospect of more accommodative ECB action. We recommend staying short EUR/USD and EUR/JPY [Japanese yen] spot."
        Piccoli at Teneo put the increased risk of a Greek exit from the Eurozone at about 75%. Piccoli writes:
        "The Greek prime minister may quickly have to make a choice between two options: embarking on a journey that brings his country closer to Grexit, or re-starting negotiations by submitting an offer more responsive to his lenders' demands -- despite having campaigned successfully for tonight's "No." It is is becoming ever more difficult to see how Greece could retain the eurozone with Tsipras in charge."
        We'll be keeping an eye on the Global X FTSE Greece 20 ETF ( GREK), the iShares MSCI Emerging Markets ETF ( EEM), the Vanguard FTSE Emerging Markets ETF ( VWO), the iShares MSCI Emerging Markets Eastern Europe ETF ( ESR) and the market reaction in nearby emerging economies including Poland, Hungary and Turkey.
        Some related links on the Greek referendum and its aftermath:
        The Greek Interior Ministry referendum website with the up-to-date vote tally.
        Emerging 'no' vote in Greece poses Merkel's biggest challenge, The Wall Street Journal.
        " If Europe is determined to save the European dream, it needs to start by saving Greece." The Brookings Institute.
        El-Erian on Greece, via Facebook.
        (END) Dow Jones Newswires

        July 05, 2015 17:24 ET (21:24 GMT)

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