Financial Professionals


Grexit More Likely than Contagion


From the international investment professionals at Euclid Advisors

For a country so tiny at less than 1.5% of European GDP, Greece has been a major distraction since the beginning of the year, with the power to potentially disrupt growth, bond markets, and overall stability of the euro. In the aftermath of Sunday’s ‘no’ referendum, the question isn’t whether or not Greece stays in the euro, but what contagion spillover there will be for other European markets and economic growth.

Contagion risk appears to be in check at the moment, an opinion based on a gauge we’ve found to be reliable over the years. The financial contagion index developed by Strategas Research, which measures European bank credit default swaps, European sovereign spreads, U.S. high yield spreads, U.S. Treasuries, and gold, provides a good indication of how much contagion risk there is in the markets and how much may spread to the real euro economy.

During the tumultuous chapter in the Greek debt saga from late 2011 into 2012, this index based on the same factors was more than double current levels. Our current view is that even though odds are increasing for a Greek exit from the euro, the chance of significant contagion like we saw in 2011-12 appears to be much lower.

Past performance is not a guarantee of future results.

Virtus Investment Partners provides this communication as a matter of general information. The opinions stated herein are those of the author and not necessarily the opinions of Virtus, its affiliates or its subadvisers. Portfolio managers at Virtus make investment decisions in accordance with specific client guidelines and restrictions. As a result, client accounts may differ in strategy and composition from the information presented herein. Any facts and statistics quoted are from sources believed to be reliable, but they may be incomplete or condensed and we do not guarantee their accuracy. This communication is not an offer or solicitation to purchase or sell any security, and it is not a research report. Individuals should consult with a qualified financial professional before making any investment decisions.