Greece's debt crisis has been widely reported, and now it's calling on other European Union members to help bail it out. It comes as credit agencies downgraded both Greece and Portugal triggering another rise in respective bond yields. That caused further panic, and falls in global sharemarkets.
While there's a direct impact for Europe, for Australia, Ben Potter from IG Markets says what we may be seeing is a repeat of the early January sell-off. The benchmark S&P/ASX200 declined 1.2% on Wednesday, following the downgrades. But don't forget, the index is up 7 per cent since its low just three months ago.
Investors don't like uncertainty and that's one of the main things that keeps a lid on sharemarket gains. Right now, the uncertainty is the actual terms of the Greek bailout. While there's fears the Germans may not support a plan to help the Greeks, EU president Herman Van Rompuy says aid negotiations are underway and well on track. No doubt a decision will be made, and that uncertainly will alleviate in the next couple of weeks. The EU will not let one of its member countries go down.
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Once that is out of the way, Ben Potter reckons investors will return their focus to what's been driving the local sharemarket recently, and that's stronger earnings growth from the corporate sector and stronger underlying economic fundamentals.
Furthermore, Australia's sharemarket strength is more correlated with China, which is still demanding resources further sustaining our mineral boom, and its recent rally, has been linked to better economic news from the United States.
Also supporting the view that there's no real direct impact, yet anyway, comes from CBA boss Ralph Norris. He says the Greek financial situation may affect pricing and credit availability in the short-term, but he doesn't see any impact right now.
Mr Norris has reassured investors, the bank doesn't have any direct exposure to Greece or any Greek bank.
We'll be hearing more from the banks over the next week, as the bank profit reporting season continues.
Given the recent rally on the market, many brokers and investors have been looking for an excuse to sell, and the latest saga in the European debt story, may have just given them a reason to do so.
