Greek Election Update: Is The EU Preparing for a Grexit?

Greek Election Update (Originally Released 12.29.14)

The biggest event of this holiday week has already come and gone, as the Greek Parliament failed to elect a President and there will not be general elections in early February. PM Samara’s gamble has failed, and as of this writing the Athens stock market is down 11% and European markets are off about 1%.

From an investment standpoint, despite the drop in Greek shares, we do not see this as a negative game changer. To be clear, the reason stocks are down is because the market is afraid the looming election will delay QE by the ECB at the Jan 22nd meeting, not because of a fear Greece will leave the EU or default if Syriza gains a majority. It is important to realize the true “negative” outcome the market is worrying about.

Bottom line, even if Syriza wins the general election, the party has moderated materially and no one is afraid of another default/Greek exit showdown. This is all about QE and frankly we don’t think this results in a delay of QE be the ECB in January, assuming the governing council is planning on doing it already.

So, we do not see this as a negative game changer in our “Europe outperforms” thesis, and we would be patient buyers of this dip.