For a country with so little economic output in the global context, Greece has had a surprisingly large political and stock market impact since May 2010.
The latest saga has resulted in a nerve wracking Greek government referendum on Sunday July 5th regarding the recent EU bailout conditions, as well as an immediate closure of banks and the stock market. For the average Greek, this is terrifying. For Europe as a whole, the impact will likely be small.
In the short term we will see market volatility. The longer term economic impact for the rest of the world from Greece leaving the EU will likely be negligible. However, the political impact for the EU is not as negative as people perceive. A withdrawal imposes fiscal discipline on the other members of the EU and demonstrates the consequences for not doing so.
How does this impact your portfolio? Global stocks markets are down and bond markets are up. For the moment your portfolio is down slightly compared to March 31st. The businesses we own have little if any exposure to Greece. There is a disconnect between their economic fundamentals and the current market decline. In 2011, Greece caused six months of turmoil in the markets amid fears of bank weakness and contagion. This was followed by 3 1/2 years of impressive stock market appreciation. With the banks and other European countries much more sound now, we believe even more strongly this is the time to stay the course. Our cash levels have been rising over the last year, not as a market call but simply as a function of our investment process finding fewer attractive investments. This cash will serve us well should this downturn be prolonged and give us ammunition to capitalize on opportunities.
If you have any questions, please do not hesitate to contact us,
The Heathbridge Team
Heathbridge Capital Management
Telephone: (416) 360-3900