Market players ponder opportunities as Greece heads towards default

Singapore

AS GREECE unexpectedly veered towards default and Asian markets corrected sharply in response, market participants remained optimistic.

A resurgent US economy, recovering eurozone fundamentals, and supportive central banks all mean investors have buying opportunities in the event of sharp price falls, analysts said. They added that while Asian currencies will be hit, they expect emerging Asia to outperform emerging markets on the whole.

As Richard Jerram, Bank of Singapore's chief economist, put it: "We can see a situation where the initial knee-jerk risk-off market response is replaced by a rally once the resilience of the system becomes apparent."

Kelvin Tay, regional chief investment officer at UBS Wealth Management, said that the European Central Bank has the tools and the determination to restore calm to financial markets. There could be a buying opportunity in European assets, he said.

The US Fed could also respond by keeping liquidity conditions loose, he added. "A dollar surge sparked by a Greek exit could delay the first Fed rate rise beyond September, or potentially into 2016," Mr Tay said.

Russ Koesterich, chief investment strategist of asset manager BlackRock, said the focus on Greece has obscured the fact that the rest of Europe continues to improve.

"Last week brought more evidence in the form of rising PMI (purchasing managers index) surveys and improving credit conditions," he said.

"Our base case remains that the European authorities will make every effort to minimise contagion and that the impact on European financial markets beyond short-term sentiment- driven markdowns is limited."

The Greek government, which had raised hopes of a temporary resolution to its debt crisis last week, dashed them again over the weekend and plunged the country - economically insignificant in the eurozone - into political uncertainty.

Creditors and the Greek government could not agree on bailout terms last week. This led left-wing Greek Prime Minister Alexis Tsipras, who was elected on an anti-bailout platform, to call for a referendum on July 5.

People will vote on whether they support creditors' demands, including on issues of taxes and pension reform, or the current Greek government's position against them.

Market participants said the referendum is likely to be in effect a vote on eurozone membership, even though the Greek government does not want to cast it that way. A pro-European coalition might take over in the event of a clear "yes" vote, though the new government would still have credibility issues over its ability to implement reforms, some said.

On Monday, capital controls were imposed on banks ahead of a possible default on a Tuesday debt repayment. Creditors had also rejected the idea of extending a financial assistance programme to Greece, which expires on Tuesday.

Frederic Neumann, co-head of HSBC's Asian Economics Research, said that while there are contagion risks, investors have to keep things in perspective.

"Unlike previous episodes when contagion fears swept emerging markets, most Asian economies possess a comfortable reserve buffer. Take India. The country was hit hard by the 2013 'taper tantrum' but its reserves are higher today than they were back then, and the current account deficit much smaller," he said.

Mr Neumann added that Korea, Taiwan, Thailand, and the Philippines look robust as well. Even in Indonesia, which has faced outflows on rate hike fears, debt levels are still low and swap lines can be drawn upon should reserves run low, he said.

Nevertheless, if Greece worries persist, Asian exports will be affected due to lower eurozone growth and a weaker euro, he said.

Japanese financial group Nomura, meanwhile, said in a report that a significant or prolonged financial market contagion in Asia is not expected, due in part to the oil price crash benefiting Asian economies.

On Asian currencies, UBS's Mr Tay said that while Indonesian and Malaysian bonds and currencies are vulnerable, the Chinese yuan, Singapore dollar, Korean won and Taiwanese dollar are the most defensive and are more likely to be relatively safe havens if there are liquidity fears.

Heng Koon How, senior currency strategist at Credit Suisse Private Banking and Wealth Management, said he is staying broadly negative on all Asian currencies except the Chinese yuan, which he forecasts to remain stable. This is due to risk-off sentiment as well as a stronger outlook for the US dollar, he said.

Each Asian currency has negative drivers, like weak external trade in Japan, the Mers disease outbreak in Korea and a possible sovereign credit rating downgrade in Malaysia, he said.

Singapore banks DBS, UOB and OCBC said they have no exposure to Greece. UOB and OCBC added that they have minimum exposure to southern Europe.

Additional reporting by Siow Li Sen

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