by Ralph Cole, CFA Executive Vice President of Research


It’s been a strange week in “Euroland.” After a resounding “no” vote on the Greek debt bailout referendum last Sunday, it appeared that Greece was on its way out of the Eurozone. Capital markets promptly sold off early in the week.

Today it appears that Greece has delivered a reasonable response. “The program they are presenting is serious and credible,” said French President François Hollande.

We must admit that we have a tad bit of Greek fatigue in recent weeks, but it is clear that Greece is on everyone’s mind these days. The country has presented a 3-year plan, which is better than some of the temporary schemes that have been floating around the past few months. If it is accepted over the weekend, markets should continue to move higher along with yields. The removal of this distraction will allow the ECB to continue focusing on the nascent European recovery.

We continue to have our doubts for the long-term sustainability of Greece within the Eurozone. It doesn’t appear to us that the Greek people are committed to the structural changes that need to take place in order to pay their debts and make their economy more competitive in the future. This will not be the last time we talk about Greece’s debt, economy and leadership.

Roller Coaster

Compounding the volatility induced by Greece was the roller coaster known as the Chinese A-share market. As China tries to open its capital markets, they also must learn how to govern them.  Much like holding water in your hands, the tighter you grip, the more water that slips through your fingers. Confidence in the system is the most important element to a successful exchange. The more China tries to prop up their market the less confidence investors have in their system.

We are more concerned with underlying growth in China’s economy than we are with the volatility in their A-share market. It is clear that China’s growth is slowing and it is nowhere near the 7 percent reported by the Chinese government. Growth around the world is challenged and China’s growth is needed until the stimulus by other countries gets their economies growing.

We will continue to monitor their real economy closely in the coming months. We expect growth to pick up around the world in the second half of the year, but that forecast has come into question in recent weeks.

Our Takeaways for the Week

  • Proper investment patience kept prudent investors from overreacting in a week packed with news flow
  • Growth in the second half of the year should propel markets modestly higher