07.15 Events in Greece, China & Iran: Oh My Investors!

Greek Financial Crisis

When looking at your investments, short term returns can be quite volatile and are often influenced by events that are completely out of the investor’s control.

This is evidenced by market volatility in recent weeks due primarily to events in Greece and China. U.S. Markets sold off on worries over a big fall in Chinese stocks (30% or so in a couple of weeks) and whether the Eurozone could reach a deal with Greece. These types of stories make great headlines, but it’s important to step back and take a long term perspective. The Greek “crisis” has been going on for several years with the Geek GDP falling 25% in the last three.  While that is certainly a disaster for the Greek people, it may not matter a whole lot to the rest of us.

Over the last day or so the Eurozone and the Greeks have reached an agreement that Allianz Chief Economist Mohamed El-Erian calls, “In relative terms a good thing, but in absolute terms a total mess.” The agreement leaves the Greek future relative to the Eurozone uncertain, but for now global markets are relieved.

The very rapid drop in Chinese stocks was also unsettling to global markets. But let’s take a step back. Chinese stocks did go up 150% in less than a year, so quite possibly the recent huge decline was more a reaction to an overheated market than referendum on the Chinese economy. Regardless, Chinese stocks have experienced a tremendous bounce off their lows and global concerns have abated.

“Iran and a group of six nations led by the U.S. reached an agreement yesterday that limits Iran’s nuclear program for more than a decade in return for lifting oil and financial sanctions,” according to a recent The Washington Post article.

Due to its limited role in the world economy, Iran doesn’t have much impact on world financial markets, but lifting of sanctions may impact energy markets. There are concerns that increased production from Iran could push down prices in an already glutted oil market.

However, these negotiations have been ongoing for more than 20 months and the outcome may already be factored into the oil markets. Could it be that it’s finally time to take a look at the energy group?

For now, the noise from Greece and the Eurozone has quieted, and Chinese markets seem to have stabilized. It’s earnings season, and if second quarter earnings come in better than reduced expectations, investors may have a pretty good investment climate the second half of the year.

But as Mark Twain said, “Climate is what we expect, weather is what we get.”

Is your portfolio ready to weather market uncertainties and unexpected events?

James Mathis, Managing Partner, Echelon Investment Management