On Sunday, German finance minister Wolfgang Schäuble commented that a default by Greece on its debts and the country’s exit from the euro seems unavoidable. Greece’s Prime Minister Alexi Tsipras also announced on the same day that the country’s banks and stock market will be closed and that capital controls, mainly to prevent a bank run, will be imposed. Stock markets around the world, or at least those that have opened for trading since the latest events concerning Greece’s debt situation, have reacted violently. For instance, Japan’s Nikkei 225 Index and Australia’s S&P/ASX 200 index have both…
On Sunday, German finance minister Wolfgang Schäuble commented that a default by Greece on its debts and the country’s exit from the euro seems unavoidable.
Stock markets around the world, or at least those that have opened for trading since the latest events concerning Greece’s debt situation, have reacted violently. For instance, Japan’s Nikkei 225 Index and Australia’s S&P/ASX 200 index have both fallen by close to 2% currently. Meanwhile, our own Straits Times Index (SGX: ^STI) in Singapore has also slipped by more than 1% from last Friday’s close.
Given all that’s happening now, it’s worth thinking about the consequences of a Greek debt default and what it might mean for us investors in Singapore.
Much ado about nothing
Without beating around the bush, my opinion is that all the hullabaloo going on about the Greek situation would amount to nothing much for investors in Singapore.
Singapore’s currently not even amongst the top 20 countries from which Greece imports goods and services from. In addition, Singapore “only” imports US$554 million worth of goods from Greece; this is merely a drop in the ocean for Singapore given that we import roughly US$306 billion worth of goods and services annually. So, given this figures, Greece’s economic relationship with Singapore is simply not massive enough to lose that much sleep over in the event that Greece’s economy collapses.
Moreover, if we were to observe the 30 blue chip shares that make up the Straits Times Index, there are hardly any companies with major business interests in Greece. So, even major businesses in Singapore, apart from those in the shipping industry, are likely not very affected by what is happening in Greece.
In the grander scheme of things, most investors are worried about the knock-on effects that a Greek exit from the euro might have on Europe and the shared currency. There have even been reports that a Greek exit would lead to problems for all the countries sharing the euro which might then cause a recession in Singapore given our nation’s large trade links with Europe as a whole.
But the situation may not be as bleak. The majority of Greek’s debt is held by member states of the euro area, the European Central Bank (ECB), and the International Monetary Fund (IMF). This dynamic may help to cushion any negative impacts to the financial system in the event of both a Greek default and exit from the euro. Politico Europe writes:
“Anticipating the market reaction on Monday, Eurogroup officials emphasized that the eurozone was better prepared than ever to withstand this shock and portrayed Greece as a one-off case. Italy, Spain and Portugal are faring better economically. Much of Greece’s €320 billion debt is now held by EU states, the ECB and the IMF, largely neutralizing the threat that loomed so large five years ago to Europe’s banking system that had been the country’s main creditors.”
Put another way, the crisis in Greece is most likely going to be contained within the governments of Europe instead of spreading into the private sectors.
With the relatively tiny trading relationships between Singapore and Greece, the lack of major business interests in Greece for large Singapore-listed corporations, and the likely containment of a Greek default within the hands of the ECB, IMF, and European governments, impacts that may arise from Greece’s eventual fate may not even be huge.
At the end of the day, while a Greek default and exit from the euro might unfortunately result in financial hardship for the people of Greece, investors in Singapore may not even notice its impacts, if any.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim does not own any shares in the companies mentioned above.