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  • Greece Occupies Headlines with Less Contagion Risk


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    Greece Occupies Headlines with Less Contagion Risk

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    Greece Occupies Headlines with Less Contagion Risk

    Headlines from just about every financial media outlet have had something to do with Greece recently as the four month extension on Greece’s bailout deal, cut in February, comes to an end. Greece owes the International Monetary Fund about €303 million on June 5, which they are at risk of being unable to afford, in addition to over €26 billion in payments due in 2015 alone. Since the newly elected Prime Minister Alexis Tsipras took office in January, Eurozone creditors have been negotiating new terms with the anti-austerity Greek government in an attempt to keep them from defaulting on their debt and in the 16 year* old monetary union. After months of lines being drawn, crossed and redrawn Greece seems no closer to a solution today than they did when the can was kicked down the road four months ago.

    Despite the uncertainties surrounding the future of Greece, there seems to be limited risk of contagion to the periphery at this time. Relative to 2011, when not only Greece, but also Portugal, Italy, Ireland and Spain were facing deep economic troubles, sovereign bond yield are significantly lower. To illustrate this point the table below shows the average yield of 10-year government debt for each of the countries listed above in 2011 and 2015:

    2011 2015
    Portugal 10.24% 2.18%
    Italy 5.42% 1.52%
    Ireland 9.58% 1.16%
    Greece 15.75% 9.48%
    Spain 5.44% 1.53%

    Equity markets have also shown few signs of stress this year as the MSCI Europe Index is up almost 11% when measured in Euro’s year-to-date. This likely reflects moves made in the financial system to limit exposure to a Greek default in addition to the higher capital reserves held by banks globally resulting from the implementation of the Basel III standards.

    While it is imperative to consider the many complications the Eurozone faces, neglecting to allocate funds to a region that is undergoing monetary easing and what appears to be starting an economic recovery can be a costly mistake. Geographic diversification can also offer investors the potential for better risk-adjusted returns when implemented appropriately. We believe that investors should consult with a professional portfolio manager when building a diversified portfolio and suggest that anyone who has not already done so reach out to their Hennion and Walsh Financial Advisor or a member of the Hennion and Walsh Asset Management Team.

    Sources: Equity Market, Fixed Income and REIT returns from JP Morgan as of 5/29/15. Rates and Economic Calendar Data from Bloomberg as of 6/1/15.

    *The European Monetary Union was started in 1999, however Greece joined in 2001.

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    Disclosures: Past performance does not guarantee future results. We have taken this information from sources that we believe to be reliable and accurate. Hennion and Walsh cannot guarantee the accuracy of said information and cannot be held liable.

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    ML BOFA US Corp Mstr [Merill Lynch US Corporate Master]: The Merrill Lynch Corporate Master Market Index is a statistical composite tracking the performance of the entire US corporate bond market over time.

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