Just as negative headlines garner more attention than positive ones, one thing stock markets love is an upset.
Readers who have been watching the Greek saga will know that the country voted 'No' to a referendum asking whether they would consider further austerity measures in return for additional bailout funds from creditors. Given that existing austerity and bailout packages have failed to deliver on growth – Greece's GDP was 10% lower in 2013 than it was in 2006 – it is perhaps no surprise that a 'No' vote came in.
Nevertheless I expect the result to shock markets, and combined with a couple of other factors I think our S&P/ASX 200 (INDEXASX:XJO) index could see a down day today. Here's why:
- The 'No' vote
As we've seen in recent weeks, the uncertainty over Greece has caused a few topsy-turvy days in the market and I expect that tradition to repeat itself today.
However as we also saw last week, nobody seems to know precisely why the Greek situation should cause Australian investors to sell, and I think we could also see a rebound to normality in the near future.
- Weaker Australian dollar
The Australian dollar fell below US$0.75 over the weekend for the first time since 2009. While this is good news for companies with foreign earnings like Domino's Pizza Enterprises Ltd. (ASX: DMP) and Westfield Corp Ltd (ASX: WFD), it's also likely to scare off a number of foreign investors in our market, increasing the likelihood of a sell-off.
- Falling iron ore prices
Iron ore fell back to US$54 a tonne on Friday and looks to weaken further early this week. The big miners, Rio Tinto Limited (ASX: RIO), BHP Billiton Limited (ASX: BHP), and Fortescue Metals Group Limited (ASX: FMG) together make up just over 8% of the ASX index, and anything more than a small fall will be reflected in the wider index.
Put the three together and I think it's almost a given that investors can expect a falling market today. However, it's not all doom and gloom as there are a number of opportunities out there, with Westfield Corp and Domino's both looking like particularly good opportunities given their tendency to fall during recent Greek upsets.
A less conventional way to play the Greek fallout is with the ISHEUROPE CDI 1:1 (ASX: IEU), which is an Exchange-Traded Fund (ETF) that represents a collection of stocks from right across the Eurozone. The value of this ETF fell 10% early last week and I expect it to fall further in coming weeks as investors re-evaluate Greece's impact on the Eurozone.
Perhaps the most important lesson is to 'be greedy when others are fearful', and watch the falling market for opportunities to top up on your favourite stocks.
