A week of volatilty: Greece and the end of financial year

July 1, 2015, 12:52 pm Aaron Lynch Yahoo7 Finance

It’s been a big week already and we are only just into it!

Firstly we have the end of the financial year in Australia, and that in itself brings volatility into the markets.

Investors, funds and traders typically close and open positions based on taxation treatment to better influence their overall bottom line.

The myriad of reasons for buying and selling is not always logical, as those sitting on loses may look to crystallise those declines so they can offset them against profits elsewhere.

Others in profitable territory are cashing out to reallocate those resources, as they may see greener pastures over the fence or potentially even overseas.

Added to this time of year, when many spring clean their stock market portfolios, is the current situation in Greece that has jolted markets globally.

For some they may feel buoyed by the fact they have no exposure to the Greek economy or stock market by investing locally.

However, we observe that world markets like North America, Asia and Europe on the whole are taking hits as investors ponder the global ramifications.

The good news is that eventually people will see the issue for what it is - Greece should have never been allowed into the Euro with a history of poor economic management, especially regarding debt levels.

Secondly, their economy is approximately half the size of New South Wales, with GDP at $242 Billion.

The major losers in the tragedy will be the Germans, French and the IMF if they have to write off debt, as they are the biggest holders.

If Greece is cut adrift of the Euro, make no mistake there will be economic pain for the person on the street.

However, it may trigger a reset button on Europe if the contagion does not spread.

There is a real risk that it could become fashionable to jump off the boat, and countries such as Spain, Portugal and Italy could see that as a way out.

As an investor in markets, if you can look past the social affects, you might see some investing ideas come to the surface.

As an advocate of international investments we could look at overseas markets from Australia and gain exposure to these markets through Exchange Traded Funds.

Think of them as closer to stock than a managed fund is, but not exactly a stock either (more on ETF's in future articles).

The next two charts show two ETF’s, the first is an ETF (GREK) made up of the top 20 stocks in Greece.

The second is an ETF (EWG) built around 61 major German companies, think names like Adidas, Porsche, BMW, and Allianz all household names here in Australia.

Both are monthly line charts and prices are in US dollars as these ETF’s trade on the NYSE. They both tell a story; Germany has been the stand out performer in Europe and has performed well in recent years.

Greece has been in decline for some time and one might argue that there were some signals on the way down that it might be time to jump ship.

The future is uncertain at the best of times when it comes to investing, but with the advent of vehicles like ETF’s they can allow us to gain exposure to international markets in a straightforward way.

Of course we can’t know whether Greece will exit the Euro in the coming period of time, if they did would that fuel a rally in Germany?

Eventually Greece will recover; when it does there are ways to get exposure to a bounce, outside of the local exchange.

Good Trading

Aaron Lynch is a Market Analyst with optionsXpress Australia by Charles Schwab. optionsXpress Australia is a pioneer in online stock, options and futures brokerage service to the self-directed investor.

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