30/12/2014
By Elaine Moore, Stephen Foley and Kerin Hope
The charm offensive launched by Greece’s leftwing Syriza party to persuade foreign investors that it would not wreck the country’s economy and finances were it to win power suffered a notable hiccup last month.
After attending a meeting with Syriza economists in London, a hedge fund analyst wrote that their plans for the country were “total chaos” and warned of a run on bank deposits if the party came to power.
As that possibility draws near, with Syriza leading the polls and a snap election set for January 25, the more surprising factor may be the party’s success at dispelling at least some investors’ worst fears.
Alexis Tsipras, Syriza leader, has abandoned his pledge to “tear up” the bailout agreement with international creditors and is instead emphasising more moderate steps to address the debt load as well as his deep commitment to the euro.
Krishna Guha, of Evercore ISI, warned that, at a minimum, investors faced “a four-week period of elevated uncertainty in which eurozone risk assets will struggle to perform.”
But, Mr Guha added: “We believe that Tsipras will prove more pragmatic than past Syriza rhetoric suggests. He has opened back-channels to Berlin, Paris and Frankfurt, and has every incentive to try to negotiate relatively cosmetic changes to Greece’s programme and ride the early-stage Greek recovery rather than derail it.”
Nick Wall, a portfolio manager at Invesco, also noted Mr Tsipras’ recent attempt to tack to the political centre. “They are going to need private sector investors, particularly if they are going to start running deficits again,” Mr Wall said.
Investor concern about Greece has been growing as it appeared increasingly likely that premier Antonis Samaras would be forced to call new elections. Mr Samaras ultimately did so on Monday after his party’s candidate for president failed to win enough support in a third and final round vote.
Stocks in Athens fell 11 per cent on the news, while short-term borrowing costs, which had been as low as 3.5 per cent in the summer, jumped above 12 per cent. European stocks, initially resilient, fell more than 1 per cent the following day. Meanwhile, yields on German government bonds, regarded as a safe haven, fell to a record low of 0.54 per cent.
“Clearly, the prospect of fresh negotiations between Greece and its creditors is a troubling prospect for investors and it is far from clear to what extent compromises can be made,” said Neil Mellor, senior currency strategist at BNY Mellon.
But others are viewing the elections as a potential buying opportunity, arguing that a likely Syriza government would be less problematic than initially feared, and may even be a positive for the eurozone as a whole.
“Greece could be the impetus to question the dogma of austerity,” said Krishna Memani, chief investment officer of OppenheimerFunds. “Austerity in Europe is counterproductive and getting out of the deflationary spiral requires flexibility on the fiscal side. Portugal is not raising the issue, Spain is not raising it, or Italy. Greeks finally are so desperate they are bringing it to the forefront, and maybe it will rally more energy this time around.”
Wellington Management announced this week it had acquired a 5 per cent stake in Hellenic Exchanges, which controls the Athens bourse.
As the new year approaches, many eurozone investors are focusing not only on Athens but also Frankfurt, and the question of whether the European Central Bank will engage in government bond buying next year to spur growth.
In the meantime, Alberto Gallo of Royal Bank of Scotland fretted that the same populist forces bringing Syriza closer to power in Greece could be felt more widely across Europe, casting fresh doubt over what once seemed like a nascent recovery.
“As we enter 2015, the balance of risks points to the downside for Europe,” he said. “The real answers determining Europe’s future are now in the hands of politicians.”
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