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Greece on Slippery Slope, But U.S. Stocks on Solid Ground

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PrudentPortfolioPetersBy Kevin Peters

World financial markets heaved a sigh of relief when Greece and the European Union seemed to come to a recent agreement, dispelling previous jitters over the possibility that the country would default on billions in debt.

The Dow Jones Industrial Average had been down significantly in the middle of the crisis, but headed straight back up with the announcement of the agreement. In truth, while few actually want to see the small European country go into “receivership,” it may have little in the way of long-term, worldwide impact even if the country collapsed financially, although its financial demise could be inconvenient in some quarters.

Economically speaking, Greece is about the same size as Louisiana, although most people who live in Louisiana don’t celebrate in the streets if the state government rejects a plan to pay off its mounting debt. More to the point, Greece makes up about .3 percent of the global economy. On an international scale its financial woes amount to a hiccup.

That doesn’t alter the fact that the problems of one small country can have a major impact on the rest of the industrialized world. Yet, many of the concerns surrounding the ongoing drama in Greece are political in origin, and include fears that other members of the EU, namely Portugal, Italy, Ireland and Spain, will take a similar approach to their debt issues.

Nonetheless, there are many reasons why the EU’s problems don’t necessarily spell disaster for American investors, and in fact may offer more opportunities.

For starters, this isn’t the EU’s first go-around with Greece’s debt, and now Greece primarily is financially obligated to large semipublic lending institutions, not private banks. Aside from those institutions, those that are at risk of losing investments by backing Greece are mostly private hedge fund investors.

Private sector exposure to Greek debt is much smaller than it was the last time Greece neared default, and many analysts believe that the relative health of European banks can be a stabilizing factor. Foreign investments in Greek banks totaled $46 billion at the end of 2014, down significantly compared to the $300 billion at stake in 2010, and that debt is spread around.

Thus, one man’s weed may be another’s wildflower and one country’s problems may spell opportunity for investors who take the time to analyze the ongoing drama in Greece and which stocks could be adversely, or positively, affected by the turmoil.

For instance, some analysts are advising that now is a good time for investors to consider U.S. equities in health care, industrial and information technology while playing down telecommunication services, materials and utilities.

Others note that there has been an impact on U.S. bond prices partly because the American government has little direct financial involvement with Greece, and the majority of Greek government bonds are held by European countries. Thus, the crisis has created a “flight to quality,” spurring sales of American bonds, which has resulted in 10-year bond yields falling as low as 2.32 percent.

Regardless, successful investors will seek out sufficient information to make informed decisions on what investment sectors could be adversely impacted by the chaos in Greece, and which others may be immune or even thrive. There is movement in the market and when there is movement there is opportunity, if your decisions are guided by thorough research instead of speculation.

Greece’s financial woes may be a boon to tourists. Travelers there are reporting lower hotel prices and empty roads, as Greek residents reduce car travel due to high gas prices. Tourism makes up some 15 percent of the country’s gross domestic product, so why not consider investing a little time under the blue sky over Mykonos, boating around Corfu or sampling stuffed grape leaves on Santorini – as long as you are not dipping into your retirement fund to pay for it.

Kevin Peters is a managing director and financial adviser with Morgan Stanley Wealth Management in Purchase. He can be reached at 914-225-6680.

The information contained in this column is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. The strategies and/or investments referenced may not be suitable for all investors as the appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. The views expressed herein are those of the author and may not necessarily reflect the views of Morgan Stanley Wealth Management, or its affiliates Morgan Stanley Smith Barney, LLC, Member SIPC.

 

 

 

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