advisement

Why Greece Is Not a Big Concern for Europe

Currency Observations from a European Vacation (Part 1 of 4)

Why Greece Is Not a Big Concern for Europe

Heidi Richardson recently visited 10 European countries over four weeks, and observed many signs supporting a currency-hedged exposure to European stocks.

I just returned from what I like to refer to as my version of the Griswolds European Vacation : I visited 10 countries in Europe over four weeks, spending the last two weeks on a road-trip vacation around the region. Much of what I observed during my trip reinforces that now may be a good time to consider raising allocations to eurozone equities1. Take my conversations with locals everywhere from Irish pubs to French cafes. Those I talked with didn t seem concerned about a Grexit and instead were more worried about local issues like taxi strikes and port closures, reinforcing that Greece s direct impact on Europe and the global economy appears to be small2 and that the recent Greek drama may not be a reason to avoid investing in the region.

Why Greece Is Not A Big Concern For EuropeEnlarge Graph3

Market Realist Greece is not a big concern for Europe.

Greece doesn t pose a long-term threat to the global economy or financial markets. Greece (GREK4) represents only 0.26% of the global GDP (gross domestic product) while the country s equities account for only 0.04% of the MSCI All World Equity Index. Also, European banks are now more resilient to a Greek default if it does happen. As the graph above shows, European banks lending exposure to Greece has fallen significantly. At the cusp of the financial crisis in 2008, the exposure was as high as ~$275 billion USD. It currently stands at ~$50 billion, which is a significant drop from the highs of 2008.

Instead, the European economy is seeing green shoots of economic growth, which we ll touch upon in the next part of this series. While US stocks (IVV5)(VOO6) have struggled this year, losing ~6% YTD (year-to-date), European stocks (IEV7)(FEZ8) are trading flat for the year despite the global equity turmoil and the Greek fiasco. Read on to figure out why European stocks could perform well going forward.

References

  1. ^ consider raising allocations to eurozone equities (marketrealist.com)
  2. ^ Greece s direct impact on Europe and the global economy appears to be small (marketrealist.com)
  3. ^ Enlarge Graph (marketrealist.com)
  4. ^ GREK (marketrealist.com)
  5. ^ IVV (marketrealist.com)
  6. ^ VOO (marketrealist.com)
  7. ^ IEV (marketrealist.com)
  8. ^ FEZ (marketrealist.com)