By Tommy Stubbington And Dan Strumpf
Investors are steeling themselves for a rough ride Monday after
Greek voters appeared to drive a deeper wedge between the country
and its creditors, a move that piles pressure on stocks, bonds of
some European countries and the euro.
The common currency tumbled in early Asian trading on Monday
after Greece was projected to have voted "no" to creditors'
austerity demands in Sunday's referendum. U.S. stock futures also
fell sharply late Sunday following the Greek vote.
"It's going to be very messy in the markets," said Jeanne
Asseraf-Bitton, head of cross-asset research at Lyxor Asset
Management. "It doesn't even look like a close call. That will come
as a surprise to many."
Prime Minister Alexis Tsipras said a no vote would force
Greece's creditors to compromise. But the creditors have said a
rejection of the bailout terms would severely hurt the chances of a
deal, putting the country at risk of an exit from the currency
bloc--a prospect that has rattled markets as talks intensified over
the past few weeks.
"The majority of our clients went into the weekend expecting a
'yes' result," Francesco Garzarelli, co-head of markets research at
Goldman Sachs Group Inc., wrote in a note to clients shortly before
polls closed Sunday.
He expects a definitive no outcome to increase the likelihood of
Greece's exit from the eurozone.
Investors expect a bout of market tumult in the U.S. and Europe
following Sunday's vote.
Eurozone equities have drifted lower over the past month after a
strong start to the year, with the Euro Stoxx 50 losing nearly 4%.
Investors are bracing for the most volatile markets since the
height of the region's debt crisis in 2012. The VSTOXX index--a
eurozone measure of how much investors are paying for options to
protect their equity portfolios against price swings--climbed to
its highest level in three years on Friday.
The events in Greece add another wrinkle to U.S. stocks, which
have all but flatlined this year against the backdrop of an uneven
economy and slowing profit growth. In the U.S., futures on the
S&P 500 index fell 30 points, or 1.5%, to 2040 shortly after
electronic trading began at 6 p.m. ET Sunday. E-mini Dow Jones
Industrial Average futures shed 252 points, or 1.4%, to 17397.
E-mini Nasdaq-100 futures lost 65 points, or 1.5%, to 4364.
"It will be a negative for markets across the board," said Brian
Burrell, equity research analyst at Thornburg Investment
Management, which manages $61 billion.
"I wouldn't be surprised if we had weakness [Monday] and we had
a buyer's strike," said Michael O'Rourke, chief market strategist
at broker JonesTrading. "There's so many uncertainties out there.
Most people are going to move to the sidelines and see how it
shakes out."
Markets have swung sharply in recent weeks on the dramatic
twists and turns in the negotiations. On June 22, Greek stocks
climbed 9%, while Germany's DAX index surged 3.8%, its biggest
one-day gain since August 2012, after a deal appeared to be in
sight. The following Monday, stocks around the world fell sharply
after a weekend breakdown in talks.
Greece's stock market was on lockdown last week and won't reopen
until Tuesday at the earliest, along with the country's banks.
Trading in Greek government bonds also has been halted on some
trading platforms after they tumbled last Monday.
Most investors expect bonds issued by other highly indebted
nations like Italy, Spain and Portugal to weaken, but that the
spillover from Greece will be less pronounced than at the height of
the eurozone crisis in 2011 and 2012--even after Sunday's vote.
Those countries' bonds have in the past been vulnerable to fears
that Greek departure from the eurozone could foreshadow a wider
splintering of the currency bloc.
"Obviously, the world is a little more stable than it was in
2010 and 2011, but the risks are real and legitimate in that the
bonds are far more expensive today," said Mr. O'Rourke.
Unlike a few years ago, few Greek government bonds remain in
private hands, limiting the potential for a default to cascade
through markets. The European Central Bank's bond-buying program is
seen as a backstop to bond markets because the bank could scale up
purchases to protect other vulnerable eurozone members.
"The key for the road ahead is that the ECB delivers protection
from contagion," said Mads Pedersen, head of discretionary asset
allocation at UBS Wealth Management, which oversees around $2
trillion of assets.
Beyond the short-term volatility, many investors are confident
in the resilience of eurozone assets, betting that the fallout from
Greece won't derail an economic recovery in the region.
Some believe the Greek crisis could bolster the currency bloc in
the long run.
"'If it doesn't kill you, it makes you stronger' is the old
saying. In a way, that's appropriate here," said Brian Jacobsen,
chief portfolio strategist at Wells Fargo Funds Management.
Write to Tommy Stubbington at tommy.stubbington@wsj.com and
Chiara Albanese at chiara.albanese@wsj.com