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What is the worst that could happen if Greece actually defaults?

Greek Prime Minister Alexis Tsipras addresses his party members and ministers at the Greek Parliament.

The threat of Greece defaulting is all over the headline news, but investors apparently couldn\’t care less.

Is political contagion the bigger Greece risk?


Financial contagion may be the big concern today as talks between Greece and its creditors have collapsed for the umpteenth time.
Read on

European stocks actually rose Tuesday despite the fact that Greece seems to be on the brink of default. The Stoxx Europe 600 index finished up 0.6 percent to 385.49. The S&P 500 was also up 0.6 per cent to 2096.3, while the S&P/TSX composite ended your day slightly down at 14,753.1.

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\”It would appear that traders happen to be talking about a potential Greek default for so long that it\’s just not a surprise anymore,\” said Colin Cieszynski, chief market strategist for CMC Markets.

Investors aren\’t completely oblivious to the possibility that Greece may exit the eurozone. A new survey of fund managers by Bank of the usa Merrill Lynch found that most don\’t expect talks with Greece to finish well, with 15 percent predicting a Grexit – Greece leaving the eurozone – and 42 per cent expecting only a default.

Higher cash levels show how caution is in the air

The survey found that nearly 25 % of the managers have taken out some type of protection or hedge against a possible fall within the stock market in the next three months, the highest percentage because the survey started.
The average cash level among managers has become up to 4.9%, the highest level since January.

\”Higher cash levels show how caution is in the air,\” said Michael Hartnett, chief investment strategist at BofAML Global Research.

But after 5 years of being constantly reminded that Greece may default and exit the eurozone, it seems investors no more fear such an event because they have previously.

For instance, bond yields this year spiked out of control when it appeared the prospect of a Grexit was imminent, but they were essentially flat Tuesday.

 

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