After five quantitatively-stimulated months of consecutive gains, the S&P Europe 350 fell by 4.6% in June. The culprit, undoubtedly, Greece. Failed negotiations and a hastily arranged referendum look likely to ….
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Tim Edwards, Senior Director, Index Investment Strategy at S&P Dow Jones Indices
accompany the political blame and bluster at a missed payment due to the IMF at midnight tonight. Greece’s banks – and its equity market – are closed at least for a week and potentially for longer. This is however, a political crisis just as much as an economic crisis; hopes for a last-minute, face-saving resolution are far from extinguished.
– The impact of a Greek default may be more manageable than it might have been five years ago, but it is not good news for the Eurozone and its economy. Every single one of our equity indices shown on the dashboard is down, and in most cases considerably so. The European bond markets fared little better, with the S&P Eurozone Sovereign Bond index falling 2.8% and credit spreads widening out in the peripheral countries of Spain, Italy and Portugal.
– Surprisingly, perhaps, the U.K. was by far the worst performer. Prime Minister David Cameron picked a bad time to begin negotiations for the U.K.’s continued membership and, with the referendum potentially moving to a closer date in 2016, investors (and credit rating agencies) reacted negatively to the increased uncertainty.
– Among S&P Europe 350 sectors, all were down yet Telecommunication Services was down less than others, falling only 2.0%. Information Technology was the worst performing sector – down 7.8% – and recorded lowest return of any index on this month’s report. In the remainder, returns were closely packed together in signs of high correlations and the macro-led market dynamics.
– Among strategies, the ability to allocate to bonds in down-trending markets saw the S&P Dynamic Asset Exchange top the charts in June. Otherwise in strategies – as across sectors – there were few places to hide; the majority clocked in losses close to that of the parent index.
– With high correlations and a “risk-off” sentiment dominating performance into month-end, volatility is high. The VSTOXX® index closed yesterday at its highest level since mid-2012. However, in signs that contagion from a Greek default may be limited, the U.S.-based VIX remains relatively untroubled in comparison.