The word symphony is derived from the Greek word symphonia, and before the word settled on its current melodic meaning in the 17th century, it was used to convey compatibility between opinions or actions. Today, tensions stemming from high debt loads and too little growth—not just in Greece but also China and Puerto Rico—are reaching a crescendo and seem to be some ways off from a resolution.
First Movement: The Greek Impasse
Clashes culminated in early July with the Tsipras administration’s unexpected calling of a referendum and Greek voters’ rejection of European creditor demands. Although a short-term deal was brokered to pull Greece back from the brink of financial collapse, Europe stood its ground on austerity. It is hard to tell how things will play out, but this much is clear: A prolonged period of uncertainty will probably accompany negotiations, as long as a Greek exit from the eurozone is in play.
Second Movement: The Chinese Volley
Greece is not the only country beset by uncertainty. Momentum in the high-flying China A-shares market has been broken, though a summer deluge of support measures from the People’s Bank of China (PBOC) ultimately had some stabilizing effects. After the latest selloffs, however, China H-shares, which are traded in Hong Kong, appear to offer some relative value.
Third Movement: The Volatility Effect
Financial markets at times responded nervously to the Greek and Chinese events, but we think most of the impact will be short-lived. The focus on Greece and China has obscured the facts that the Greek economy is very small, and China A-shares are mostly held by domestic investors. We believe that longer-term damage to the global economy or markets is unlikely.
Fourth Movement: The Search for Value
The widespread aversion to risk renewed some appetite for safe haven bonds, as did changing expectations of when the Federal Reserve (Fed) will act on interest rates. Despite that, we still believe stocks will fare better than bonds and are inclined to look internationally and to cyclical sectors for the most compelling equity opportunities.