Jun 29, 2015

    All eyes on Greece as debt deadline looms

    THE week ahead could spell more uncertainty for local investors, with Greece teetering on the brink of a default as its bailout programme expires in just one day.

    The country needs to repay about 1.54 billion euros (S$2.32 billion) to the International Monetary Fund tomorrow.

    But it was refused a bailout extension by its international creditors over the weekend, following the breakdown of an emergency summit in Brussels last week.

    The Greek government called for a July 5 referendum on the terms of the country's bailout on Saturday.

    Greece's failure to pay off its debt could lead to its exit from the euro-zone economy, which would in turn "undermine investor confidence in the longevity of the euro zone", said an ABN Amro report. "Investors could then permanently price in higher risk premiums, especially for the weaker member states."

    "All eyes will be on Greece, which is in the centre of everything now," noted CMC Markets analyst Nicholas Teo.

    "But even if something is going to happen, it's not going to happen before tomorrow's deadline," he said, adding that this could spell further volatility in markets across the world.

    Regional bourses also sank as hopes for a Greek debt resolution dimmed.

    The Straits Times Index fell 28.97 points on Friday, or 0.86 per cent, to 3,320.9. For the week, it was 0.6 per cent higher.

    "A deterioration in the Greek debt situation could translate into a downside in the Singapore market," said IG market analyst Bernard Aw.

    Already, shares of the three local banks shed more than 1 per cent on Friday - a likely sign that weak market sentiments are trickling down, he noted.

    "But the Singapore market has been quite resilient - it's still performing within the range of 3,300 and 3,350," added Mr Aw.

    "I expect that to continue somewhat, unless we have other developments that could bring about a more direct impact."

    Commodities play Noble Group had a good run last week, owing to a series of share buybacks.

    The blue-chip counter rose 2.5 cents to 76 cents on Friday, reversing its earlier downtrend amid short-seller attacks.

    In China, markets took a further nosedive, with the Shanghai Stock Exchange Composite Index plunging 7 per cent.

    In response, China's central bank cut interest rates on Saturday to a record-low, while loosening bank reserve requirements.

    The knockdown in the Chinese markets could play out in other regional markets, including Singapore, said Mr Teo.

    "But there's a bigger possibility of a flight-to-safety story - funds could come down here temporarily, given that the Singapore market has always been seen as a 'safe haven' for investors."

    This means that the Singapore market is likely to pull off a better performance relative to its regional neighbours, such as by posting a smaller percentage fall, said Mr Aw.

    Sentiments on Wall Street last week were mixed, with the Dow Jones Industrial Average ending the week with a 0.38 per cent decrease. Friday saw a 0.31 per cent increase, propped up mainly by Nike, which jumped 4 per cent after releasing a strong set of fourth-quarter results.

    Apart from Greece and China, the all-important United States economy will be a factor affecting markets this week as well, with jobs numbers to be released on Friday.