Rob Burnett (pictured), Investment Director & Manager of the Neptune European Opportunities Fund, looks at the implications of Syriza’s election victory for Greece’s equity market…
Syriza's share of the vote in the Greek election was higher than expected at 36%, but just short of a complete majority. The party is likely to go into coalition with either The Independent Greeks or To Potami (The River). With Syriza having performed somewhat better than expected, what does this mean for Greece’s equity market? The instant reaction will likely be negative, but we believe this ought to prove to be a long-term buying opportunity for the patient investor.
As we have argued in the past, Syriza have no incentive to cause further turmoil in Greece. Greece has experienced a great depression – as extreme as the United States in the 1930s – with a 30% collapse in GDP. The US stockmarket fell over 80% from 1929 to 1932 and Greece's equity market returns have been similar, if weaker, with a 90% decline that began in 2007.* Alexis Tspiras is taking power, with Greece having just registered its first quarter of GDP growth in 7 years. Tspiras is aware that he has a tremendous opportunity to gather the plaudits as the economy recovers. We expect Syriza's negotiation with the Troika, comprising the ECB, the European Commission and the International Monetary Fund, will be difficult but all sides are incentivised to come up with a face-saving compromise.
*Source: Bloomberg, as at 26.01.15. The value of an investment and any income from it can fall as well as rise as a result of market and currency fluctuations and your clients may not get back the original amount invested.
