By Tommy Stubbington and Josie Cox
Greek stocks and bonds on Monday felt the weight of the success
of antiausterity party Syriza in the country's election, but the
impact on European markets more broadly was mild.
Athens' main stock index initially slumped by nearly 5%, and was
down 3.2% at the close. Bank shares were sharply lower, with
Piraeus Bank SA tumbling more than 17% to the bottom of the
pan-European index. Peers Eurobank Ergasias SA and Alpha Bank AE
both ended more than 10% lower.
The victory for Syriza could set Athens on a collision cause
with its creditors and embolden radical parties elsewhere to
challenge Europe's economic orthodoxy. Analysts and investors said
they had anticipated a victory for Syriza given the party's lead in
the polls, but the size of the margin was something of a
surprise.
Maria Paola Toschi, a market strategist at J.P. Morgan Asset
Management, which looks after around $1.7 trillion globally, said
that banks in Greece are "the biggest potential losers from the
extended period of uncertainty that markets may be in for."
Greek government bonds were also under pressure, with 10-year
yields climbing to 8.91%, reflecting a fall in prices.
Shorter-dated debt declined even more sharply, with two-year yields
rising more than 1.5 percentage points to around 11.5%. Investors
demanding higher yields to hold short-term bonds compared with
those on longer-term debt is often a sign buyers are factoring in a
significant chance of default.
But weakness in the euro--which has already chalked up big
losses this year--was short-lived, with the currency picking up
against the dollar and the yen in European trade. Traders and
analysts said some investors were cashing in on their negative euro
bets after recent declines.
Wider equity markets in Europe were unruffled by the news, with
stocks closing in on recent seven-year highs after a small early
wobble. The Stoxx Europe 600 index ended 0.6% higher. In the U.S.,
the S&P 500 was 0.2% higher at the European close.
Investors appear confident that the bond-buying stimulus program
known as quantitative easing, announced last week by the European
Central Bank leaves markets much less vulnerable to fears of a
eurozone breakup than they were during previous episodes of the
Greek crisis.
"Political risk is back on the radar in Europe, but markets are
still under the influence of the ECB's liquidity injection," said
François Savary, who oversees about $10 billion of assets as chief
investment officer at Swiss bank Reyl.
"We expect that [ECB] backstops have effectively firewalled
Greek developments and should limit contagion or re-emergence of
[eurozone] existential anxiety. As such we don't expect
developments to translate into substantial further euro weakness
beyond what is already justified by QE," said currency strategists
at BNP Paribas.
Stephen Thariyan, global head of credit at Henderson Global
Investors, which manages GBP79.9 billion ($120 billion), echoed
this.
"As an investor I predict normality and stability, given that in
my opinion Greece wants to stay [in the eurozone]," he said.
"The path to that scenario will not be without its moments, but
they are moments, which I believe Europe can deal with -- Europe
has a central bank that has bite. As for this vote, I am inclined
to buy on weakness.," he added.
In Asian trading hours, the euro dipped to a fresh 11-year low
to the dollar of just below $1.11. Ultrasafe German debt rallied to
new all-time highs while bonds in fiscally weak eurozone countries
declined.
The result gives Syriza "a strong mandate" to push through major
changes to the Greek adjustment program, said Jan von Gerich, chief
strategist at Nordea.
"The ensuing negotiations will be tough and contribute to market
volatility in the coming months," he added.
Syriza's decision to strike a deal with the small Independent
Greeks party could lead to more strained negotiations with Greece's
creditors--given the two parties share little except a rejection of
the austerity measures imposed on Greece by its creditors.
Wider pressure on bond markets in the eurozone was modest on
Monday.
Italian and Spanish 10-year yields rose slightly to 1.54% and
1.39%. Still, both countries' yields quickly fell back and remain
within touching distance of the all-time lows hit in the wake of
last Thursday's ECB meeting.
German yields, which typically fall in times of stress, touched
a record low of below 0.3% on the 10-year bond before rising to
trade higher on the day at 0.36%.
Write to Tommy Stubbington at tommy.stubbington@wsj.com and
Josie Cox at josie.cox@wsj.com
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