KNOWLEDGE CENTRE

Knowledge Centre Archive

Jun
21
2012

Greek Election Results: The Relief is Temporary

By SEI Investment Management Unit

A eurozone-friendly outcome in this past weekend’s Greek elections merely puts off the eventual day of reckoning, as the country’s two basic problems remain unchanged:

  • It cannot pay back its debt under any conceivable scenario without debt forgiveness and/or fiscal transfers from other eurozone countries.
  • It cannot improve its competitive position in the confines of the currency union without severe downward adjustments to economic output and incomes.

As long as Greece remains in the eurozone, growth of its gross domestic product (GDP) will be negative for some time, which could increase its already sky-high unemployment rate and contribute to further political upheaval. Of the five political parties that won the largest share of the vote, only one—the communist KKE—currently advocates abandoning the euro and restoring the drachma.  Most polls indicate that a majority of Greek citizens want to remain in the eurozone. However, we continue to believe that Greece will eventually have no choice but to depart the single currency union.

We continue to hold a negative view on the euro and are still cautious on equities despite yields on safe haven fixed-income securities falling to record lows. We have yet to identify sufficient catalysts for a durable rebound. Thus, we expect markets to remain news-driven and volatile for the balance of the year. We are still relatively optimistic about the North American economy as U.S. exports to the EMU account for only about one percent of U.S. GDP (two to three percent for the broader European Union). While Canadian exports to the EMU account for approximately 5% of GDP, Canada has weathered the economic downturn far better than most developed economies. As a result, we believe North American equities will remain a better bet for investors than international stock markets for the foreseeable future.

Download the complete commentary, with exhibits and implications for Europe

#

This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information is for educational purposes and should not be relied upon by the reader as research or investment advice regarding the funds or any stock in particular nor should it be construed as a recommendation to purchase or sell a security, including futures contracts. There is no assurance as of the date of this material that the securities mentioned remain in or out of the SEI Funds. There are risks involved with investing, including loss of principal. Diversification may not protect against market risk. There are other holdings which are not discussed that may have additional specific risks. In addition to the normal risks associated with investing, international investments may involve risk of capital loss from unfavourable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors, in addition to those associated with their relatively small size and lesser liquidity. Bonds and bond funds will decrease in value as interest rates rise.

This material may contain "forward-looking information" ("FLI") as such term is defined under applicable Canadian securities laws. FLI is disclosure regarding possible events, conditions or results of operations that is based on assumptions about future economic conditions and courses of action. FLI is subject to a variety of risks, ncertainties and other factors that could cause actual results to differ materially from expectations as expressed or implied in this material. FLI reflects current expectations with respect to current events and is not a guarantee of future performance. Any FLI that may be included or incorporated by reference in this material is presented solely for the purpose of conveying current anticipated expectations and may not be appropriate for any other purposes.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. The information contained herein is for general information purposes only and is not intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment. You should not act or rely on the information contained herein without obtaining specific legal, tax, accounting and investment advice from an investment professional. This commentary has been provided by SEI Investments Management Corporation (“SIMC”), a U.S. affiliate of SEI Investments Canada Company. SIMC is not registered in any capacity with any Canadian regulator, nor is the author, and the information contained herein is for general information purposes only and is not intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment. You should not act or rely on the information contained herein without obtaining specific legal, tax, accounting and investment advice from qualified professionals. Information contained herein that is based on external sources is believed to be reliable, but is not guaranteed by SEI, may be incomplete or may change without notice. SEI Investments Canada Company, a wholly owned subsidiary of SEI Investments Company, is the Manager of the SEI Funds in Canada.