The Greek Referendum and Markets

The Greek Referendum and Markets By: Amit Bhushan Date: 06 July 2015 The markets across Asia seem to be spooked as a result of the outcome of the Greek Referendum. Alas, if only the country had that much impact beforehand of the vote. The issue is actually not about the Greece as being talked about in much of the commercial news media, but what it possibly implies for the rest of Eurozone. In effect, it is possible for countries to disown Euro and decide to exit. This supposedly helps them to get better negotiating position over the debt including multilateral debt from the likes of IMF. So, if a precedent like this is set then some other countries may start seeking a similar deal if and when they seem to be in distress with responsibility of servicing Éuro lying on whosoever is left in Euro area. Where does that leave the confidence of 'foreign investor' with an exposure to "Euro". Chances of "foreign investors” to review their positions is high. And if their long term forecast reflects a sliding currency or valuation, then their clamour for "change” might be inevitable. This will possibly trigger the slide of Euro. Since the Euro area is the biggest "ímport" partner for most of the Asia, the exporters might be hit and hence the slide in the Asian Markets especially of the export dependent nations who might find getting replacement customers a bit tough. It may be noted that the Euro area is a big exporter as well. So post the currency reaching a nadir, the clamour for investors to 'buy' European assets is also likely to be as strong, however presently the wait and watch mode or other modes of partnership such as equity swap mode might be more in fashion. In the current volatile scenario, such shopping might not be for the fainthearted, though. The political leaders in Europe and other partner countries will now be seized with the opportunity on the health of financial sector with exposure to Greece and dependent exports/imports. This is while the corporate sector in Eurozone tries to make as much as possible from the weakening Euro. Exposure of Euro zone FIs in non-euro area is significant and how is this likely to be impacted will need to be watched. Also, the valuation for non-liquid assets in eurozone like sports and cultural clubs, artworks etc. may remain impacted for a while. What is possibly needed is a new kind of Stress test mechanism for the banks and the new Basels norms i.e. If the present norms are in doubt of holding out, may be. In effect, the scenario is likely to be highly disruptive, although this may start the clamour for ring-fencing economies from external shocks. Asian nations attempting to build an Economic Community of their own might have look at newer emerging scenarios and models, though such an effort on their part to balance consumption and production within Asia may not get spooked, especially so since they never targeted a currency union in the first hand. It is however the more developed and export oriented economies of Japan, Korea, Taiwan and China which might be have to identify new markets that may be impacted as most emerging economies continue to clamour to build domestic capabilities and jobs.