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What have Greeks let themselves in for after no vote?

Jeremy Stewart is head of wealth management and private banking at Danske Bank

By Jeremy Stewart

Published 07/07/2015

People celebrate in Athens after Sunday's referendum
People celebrate in Athens after Sunday's referendum

This week the focus will continue to be on Greece after the country's population rejected the creditors' austerity programme. The cliche that 'we are in uncharted territory' really holds true at the moment.

Although the Greek leaders have stated their willingness to negotiate immediately, this is unlikely before EU leaders have discussed the situation. July 20 is an important date, when Greece has to repay €3.6bn to the ECB. If Greece does not pay the ECB, it will trigger a broader Greek default.

In the meantime, the question is also how long the Greek government can continue without fresh funding. The need to pay state salaries and pensions will add uncertainty to the situation of the Greek population, which has already deteriorated. It seems to be a matter of days before deposit withdrawals could be restricted further or stopped as the Greek banking system runs out of cash.

Neither the government nor the Greek people can continue for long without fresh funding.

There is some comfort for investors in that Greece represents less than 2% of the European economy and its stock market is less than 0.5% of the European index.

But enough of Greece for the moment. No doubt the subject will be covered extensively over the next days and weeks.

What happened to quiet holiday periods for the markets? On the other side of the world there has also been uncertainty.

The Chinese market, driven in part by the strong local adoption of popular capitalism, is demonstrating just how volatile emerging markets can be.

The main Shanghai stock market dropped more than 7% on Friday and is down close to 20% since its peak in mid-June, albeit still up close to 30% since the beginning of 2015.

Many investors still believe in a long term shift in the East/West balance of economic power. Over time this will probably be reflected in the markets, but investments in these areas should always be viewed as longer term.

Interestingly the beginning of this week saw some stability returning to the Chinese markets after strong intervention by the authorities. It is easy to understand why some investors prefer to invest in global companies that can benefit from emerging market economies, rather than make direct investment in the local markets.

Returning to Europe, there is good news for some of us. Compared to 12 months ago holiday makers from sterling areas should be around 12% better off and looking back two years the figure is more like 21%.

For local investors some European property is now much cheaper. You may be able to buy a great holiday home. If your income is in sterling, take a view on the risk of having borrowings in another currency. Although exchange rates can work in your favour as well as against you, your currency decision is an important one.

There is no doubt that there is some good value but remember to consider the impact of any un-hedged currency exposure.

Jeremy Stewart is head of wealth management and private banking at Danske Bank

Belfast Telegraph

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