Is Greece avoiding the inevitable?
While money is being thrown at the indebted country, Julian Knight warns it's your pension and investments that are at risk
Sunday 26 June 2011
So what does it matter to you if a Greek civil servant gets to retire at 53? Well, quite a lot.
According to many observers – EU and IMF assistance not withstanding – the Greek state's finances are almost beyond help. The government's debt is equivalent to more than 150 per cent of the nation's gross domestic product and it's still touch and go whether or not austerity plans meant to ease the mess will actually get the green light.
But yet Greece is in European terms very small fry – about 2 per cent of the whole European economy. Nevertheless, each new twist and turn of the Greek tragedy sends equity markets around the globe into freefall and this hits your pension savings and investments. And when the Greeks default on their debt – and it's almost certainly a case of when rather than if – it could potentially have a massive further impact on your finances.
"Like the sub-prime crisis in the US, it's difficult to quantify where the damage from a Greek default could start or finish," said Phil Poole, HSBC's head of global investment strategy. "Let's say this would happen today. Then we would see some banks come under pressure and we know only too well from the Bear Stearns and Lehman Brothers crises the interrelation of the banking system. This could go on to hit the real economy as confidence evaporates and then you get lower levels of lending and business expansion. That's why the EU and IMF are adopting a policy of buying time by trying to support the Greeks now."
Ben Bennett, credit strategist at L&G investments, echoes the seriousness of a Greek debt default. "Barring a political meltdown in Athens, the people that will decide the timing are politicians from Germany, France, etc. They can choose to bring the event forward and share the burden with the private sector that still holds a lot of Greek debt," he said. "However, European banks would struggle to cope and would need bailing out, plus there could be devastating contagion for other European countries that are subsequently shunned by markets. The only option is to keep throwing money at Greece and buy a couple of years."
Bailing out now to give the banks and other states in the EU with exposure to Greek government debt, as well as Ireland and Portugal time to sort out their problems, has been dubbed "kicking the can down the road". "The cost to the Greek and European economy (of a debt default) and markets could be huge. As a result, it is better that Greece is given more time to improve its finances. In short, we think that Greece needs to default, but not yet," said Rupert Watson, head of asset allocation at Skandia Investment Group. And the contagion may not stop with Portugal and Ireland: Spain and Italy could soon come under renewed pressure. Last week, for instance, ratings agency Standard & Poor's downgraded the credit worthiness of the Spanish region of Valencia.
But Greece's continual flirting with debt default is depressing the markets. The FTSE 100 was closing in on 6100 at the end of April only to have fallen to below 5700 today. "The danger with the policy being pursued towards Greece is that it erodes confidence and the markets and the financial system run on confidence. We have already seen a sell-off of shares and this has coincided with the summer months which traditionally sees lower volume trading," said Mr Poole.
So with those investors holding Greek government debt likely to take, in City parlance, a "hair cut" – a reduction in the income from their investment – what can you do to copper-bottom your finances?
"As an investor you have a careful look at what investments you hold and look to diversify, spreading your risk in effect," said Adrian Lowcock from financial advisers Bestinvest. Two investment areas Mr Lowcock favours in turbulent times are absolute return and UK equity income, funds but investors have to choose their manager carefully. "Absolute return funds which are structured to grow even when there is a market downturn have had a bad press of late, mainly because of several poorly performing funds such as the high- profile Jupiter Absolute returns fund managed by Tony Nutt. However, there are some good managers out there and the mix of assets and ability to hedge investments should make absolute returns a good play in these markets." In particular, Mr Lowcock likes the Standard life global absolute return strategies fund, which has returned standout growth of 25 per cent in the past two years.
As for UK equity income – which focuses on profit-making companies which pay a dividend – Mr Lowcock is even more bullish. "Everyone should have one of these types of funds as they are geared towards investing in good companies which pay a dividend to their shareholders. I like the look of the Artemis equity income fund which has enjoyed 19 per cent growth in just one year. For those looking to diversify from the UK, then an overseas equity fund does the same thing but globally. In this field the Aberdeen world growth and income fund is one of the best."
Longer term, with the European sovereign debt crisis likely to drag on into 2012 and even 2013, Mr Poole thinks investors should look at the emerging market economies or shares in UK listed countries that trade with those economies. "if you're not already invested then it makes sense to gain exposure to the emerging economies of Asia and South America."
Crowd-to-let: How crowdfunding sites can give investors a slice of the property market for £500
Q&A: What’s the best way to invest for our baby?
Simon Read: 'Seven Families campaign offers an escape from financial and emotional distress'
After the election: What will Britain's financial future look like on 8 May?
General Election 2015: How you vote next week could affect your finances
- 1 Which country would be hardest to invade?
- 2 Indonesia executions: Death row British grandmother Lindsay Sandiford will refuse to wear a blindfold when she faces firing squad
- 3 The man who filmed the Freddie Gray video has been arrested at gunpoint
- 4 How the language you speak changes your view of the world
- 5 Royal baby girl born: Duchess of Cambridge's second child will be a princess thanks to Queen
Over 50,000 families shipped out of London boroughs in the past three years due to welfare cuts and soaring rents
EU asylum policy is 'a direct threat to our civilisation', says Nigel Farage
Indonesia executions live: 'Hysterical' families heard prisoners being shot dead by firing squad
The Rothschild Libel: Why has it taken 200 years for an anti-Semitic slur that emerged from the Battle of Waterloo to be dismissed?
General Election 2015: SNP and its activists 'openly racist' towards the English, Farage says
EU exit would hit UK economy much harder than neighbouring countries, study finds
iJobs Money & Business
£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...
£24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...
£16000 - £18000 per annum: Recruitment Genius: An Online customer Service Admi...
£18000 - £22000 per annum: Recruitment Genius: This global, industry leading, ...
Day In a Page
This detached four-bedroom home in Middleyard is arranged over two floors, with features that include a wood-burning stove and bespoke oak staircase.
In a row of eight detached Georgian residences, this five-bedroom home offers views of The Sound, Mount Edgcumbe and Cornwall from its impressive veranda and full-length balcony.
If you love cooking for friends this two-bedroom flat - complete with views of the iconic Battersea Power Station and an open-plan kitchen/dining area - will go down a treat.
Located above Grasmere village, this five-bedroom home is arranged over three floors and offers countryside views across Grasmere Lake towards Silver Howe.
Surrounded by the Western fells, this five-bedroom Georgian home retains many original features including panel-plastered ceilings, sash windows and fireplaces.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B, subject to change of use permissions.
A former period coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, office, kennels and an outbuilding that's currently used as a gym.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
This four-bedroom home has exposed brick chimneys and a vaulted ceiling in a breakfast room that's ideal for summer entertaining - the doors open to the patio and garden.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park