Greece and Safe Haven ETFs

Whichever way you think the eurozone is going to go, there are ETFs for all investors seeking exposure to UK and European government bonds

Jose Garcia-Zarate 6 July, 2015 | 3:38PM

Will Greece crash out of the Euro? No one knows for sure. Would it really matter? Yes, though probably not as much as it did two years ago. Financial markets have shown a rather sanguine reaction to the twists and turns of the Greek saga throughout this year. Yes, there has been volatility. However, it has been fairly contained. Those expecting a major dip in peripheral bond market valuations (i.e. contagion) have been met with fairly muted moves. All the while, the Euro has proven to be surprisingly resilient. Of course, the future situation may evolve quite differently but it's looking somewhat unlikely.

Running parallel to the consensus view in financial markets that keeping Greece in should be still the goal, there is also a current of thought that sees Greece’s expulsion of the Euro as strengthening rather than weakening the single currency project. Irrespective of which view one takes on this, the one thing that all financial market participants agree on is that the pro-activist nature of the European Central Bank (ECB) has truly changed the rules of this game. To put it very succinctly, one should not mess around with a powerful central bank determined to do whatever it takes.

Despite this, many investors may be concerned about a potential repeat of the episodes of extreme volatility experienced in the 2010 to mid-2012 period. This is understandable. My personal view is that this would be a tail risk and hence highly unlikely to happen. However, one of the golden rules of investing is not to underestimate the potential for tail risks to surprise us.

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Jose Garcia-Zarate

Jose Garcia-Zarate  is Associate Director of Passive Strategies Research for Morningstar Europe

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