Greek crisis provides best moment to snap-up equities since 2014

The Greek crisis which has caused turmoil in markets is not yet over, but it does at least appear to be heading to a conclusion with increasing pace. Whether we ultimately end up with a eurozone minus Greece, or a debt restructure which sees the region keep the single currency, will not be known for a while yet, with the country’s populace protesting at the latest terms agreed by Greek ministers. But what is not in question is the impact it has already had on equities.
The FTSE 100, for example, slumped nearly 10% from its April peak before the recent rebound, while losses for Germany’s DAX were in double-digit territory.
Clearly, markets move for a variety of reasons, and one cannot just blame the situation in Greece for the falls, with the end of various stimulus programs, potential rate rises, and the possibility that inflation may return all adding to nervousness among investors.
However, if they retreat once again from here – and given the IMF is now questioning the latest deal, that remains a distinct possibility – the more it looks like a glaring opportunity for investors. As Man GLG fund manager Henry Dixon recently noted, any falls in valuations provide an opportunity to invest more into stocks he favours, and which remain fundamentally sound.
Not that he feels there is an abundance of opportunities out there. Indeed, Dixon argues that most UK stocks are currently overvalued.
But the more the market slides, the more value comes back in. Dixon and the team at GLG said that if the FTSE 100 was to fall to 6,300, for example, around half the index would look attractive.
Dixon said: “Currently when we look at UK equities around three quarters of the market looks expensive, but if the FTSE 100 were to fall back to around 6,300 that figure would be more like 50%.”
Such a fall would mean the index had retreated more than 10% from its peak, and it still has some way to go to reach such a point, but the trend over the past few months could easily be sustained long enough to take us there.
The index at 6,300 would mark the lowest point since December, when poor news from stocks like Tesco and the banks saw the index sell-off sharply.
But with little expectation of a sustained period of rate rises, and the oil price still near one-year lows, there is yet again a distinct possibility markets could rebound sharply.
Certainly fund managers are getting more excited. Chris Williams, managing director of Wealth Horizon, is another who is positive on equity markets following the recent downturn.
“We should not overplay what impact a Grexit will have on UK equities,” he said. “Far from a tidal wave of economic destruction, as some doomsday economists have predicted, the prospect of a Greek exit from the euro has been on the cards for a number of years and most European nations have been prepared and waiting for this possible eventuality.
“Investors and investment managers have also heeded the same warnings so only a very small minority of investors are likely to be holding bonds or shares in the country, and this lack of exposure to Greece means equity valuations look well supported, especially if they fall further.”
With other factors like M&A waiting in the wings to potentially provide an additional boost, any further weakness for UK equities could provide investors with a clear marker to increase allocations (if they are not already doing so).