One-third of large investors expect a Greek exit from the eurozone as negotiations between Athens and its creditors over a desperately needed €7.2bn bailout package deteriorate.
According to a poll of 78 institutional investors, including international pension funds, private banks and intermediaries, 34 per cent believe Greece will leave the eurozone before the end of May next year.
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The poll was carried out by GAM, the Swiss fund house, at a client event last month attended by Jean-Claude Trichet, the former president of the European Central Bank. It demonstrates the concern among large investors about Greece’s commitment to the eurozone.
Julius Baer, the Swiss private bank, has set the probability of a Greek exit at 50 per cent. Christian Gattiker, the bank’s chief strategist, said this is most likely if Greece defaults on its debt repayments, triggering another general election and potentially a referendum on eurozone membership.
Athens’ unexpected decision last week to delay a scheduled €300m loan repayment to the International Monetary Fund has exacerbated fears about Prime Minister Alexis Tsipras’ ability to secure a bailout.
Saker Nusseibeh, chief executive of London-based Hermes Investment Management, said: “Is it possible that if Greece does not get a deal it might exit? It is possible. The prime minister is under pressure from his own party to be tougher [with creditors]. You cannot exclude the possibility he might hold a snap referendum [on EU membership].”
Investors are worried about “contagion risk” if Greece leaves the eurozone — the threat of heightened volatility across European bond and equity prices, particularly in Spain, Portugal and Italy.
Mr Nusseibeh said: “The euro is meant to be forever. If one [country] exits, the rest can follow. The worry is that a Greek exit might lead to a further sell-off of eurozone bonds. The effect could be profound. This [risk] is very much on our monitors.”
Mr Gattiker agreed: “What we are looking at and what everyone is looking at is contagion [risk] across the eurozone. We do not see any contagion into Portuguese or Spanish debt yet. That is where we would start to worry and put major hedges in place [if Greece defaults].”
Schroders, the UK’s second-largest fund house, has estimated there is a 40 per cent probability Greece will leave the eurozone. Senior investment staff are holding weekly meetings to discuss this risk and how to position portfolios, according to Keith Wade, the group’s chief economist.
Ideas under consideration include shorting the euro to protect against currency volatility, or buying put options, which allow the holder to sell a security at a set price within a specified time, to protect the group’s European equity exposure.
Mr Wade said: “It is possible that [Greece] will cobble something together and get the bailout it needs, but ultimately it may end up leaving the eurozone, as it faces years of being uncompetitive. Unless there is a very generous deal that writes off a lot of the debt, it will be difficult for Greece to continue [to remain part of the economic bloc].”
Ewen Cameron Watt, chief investment strategist at BlackRock, the world’s biggest fund house, was more sanguine. “Contagion risk in the event of a failure is low. In our view there would be limited broader market damage,” he said.
Barry Norris, founding partner of Argonaut Capital, the UK asset manager, agreed: “There is a real danger that Greece overplays its hand, leading to the ECB withdrawing liquidity support to the banks and Greece exiting the euro. This would be a tragedy for Greece, but not, I believe, for the rest of Europe.”
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