Your SlideShare is downloading. ×
0
KBank Capital Market perspective May 18 greece
KBank Capital Market perspective May 18 greece
KBank Capital Market perspective May 18 greece
KBank Capital Market perspective May 18 greece
KBank Capital Market perspective May 18 greece
KBank Capital Market perspective May 18 greece
KBank Capital Market perspective May 18 greece
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×
Saving this for later? Get the SlideShare app to save on your phone or tablet. Read anywhere, anytime – even offline.
Text the download link to your phone
Standard text messaging rates apply

KBank Capital Market perspective May 18 greece

392

Published on

Greece is too big too fail.

Greece is too big too fail.

Published in: Economy & Finance, Business
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
392
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
9
Comments
0
Likes
0
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide

Transcript

  • 1. KBank Capital Markets Perspectives 18 May 2012Greece is too big to fail EUR/USDParliamentary election in Greece failed to select a new coalition 1.34government. A new election is expected to be on June 17th amid growingtension that Greece might default and leave the eurozone 1.33 1.32Should Greece leave the eurozone or continue its austerity package andhow could they affect the volatility and direction of the USD/THB? 1.31 1.30Greece is unlikely to leave the eurozone and there is no rule that othereurozone members can kick Greece out. 1.29 1.28If the ECB stops supporting Greece as Greece chooses not to continueits austerity package, Greece will have no choice but to default…no 1.27money coming in, no money going out. It’s going to be a game of chicken 1.26between the new Greece’s leader and the European creditors. 8-Apr 12-Apr 16-Apr 20-Apr 24-Apr 28-Apr 2-May 6-May 10-May 14-May 18-MayDuring uncertainty period until at least the next parliamentary election,we are likely to see higher volatility in the FX market. The USD/THBcould rise to 32.60 within the next coming weeks if the tension aboutGreece’s exit and default grows. Amonthep Chawla, Ph.D.However, the eurozone will eventually come up with plans to inject more amonthep.c@kasikornbank.comliquidity to Greece and allow Greece to remain in the eurozone. Thus, theUSD/THB will fall when the financial chaos is over. Disclaimer: For private circulation only. The foregoing is for informational purposes only and not to be considered as an offer to buy or sell, or a solicitation of an offer to buy or sell any security. Although the information herein was obtained from sources we believe to be reliable, we do not guarantee its accuracy nor do we assume responsibility for any error or mistake contained herein. Further information on the securities referred to herein may be obtained upon request. 1
  • 2. Review of Greek dramaApril-May 2010: Greece agreed to introduce a EUR24bn austerity Eurozone’s debt crisis is not overpackage in exchange for the first bailout amounted EUR110bn from the % GDPIMF and the eurozone. Market was panic for fear that Greece would 180default its debt amid growing political tension after riots in Athens. 160 140October 2010: Greece planned to cut fiscal deficit to 7% of GDP. 120 100June 2011: Greece agreed to EUR6.4bn additional budget cut. 80 60July 2011: Greece planned to arrange a bond swap or roll-over some 40Greek government debt with a contribution from the private sector. 20 0October 2011: EU summit agreed on a 50% write-off of the Greek Jan-98 Jan-01 Jan-04 Jan-07 Jan-10 Jan-13 Jan-16government’s debt with additional loan to restructure banks in theeurozone and increase capacity of the European Financial Stability Germany Greece Italy Portugal Spain Index=100 on Jan 06Facility (EFSF). Stock markets in Europe 160November 2011: Greece’s PM planned to hold a referendum to decide 140whether to accept the new bailout package, yet the plan was abandonedwithin a week. EU finance commissioner demanded signatures to a 120written acceptance of the terms of Greek rescue package. 100March 2012: Greece managed to get private sector investors (PSI) to 80agree on the swap plan to write-off large percentage of Greek government 60debt, extend bond maturity and lower interest rate. 40May 2012: Parliamentary election failed to select a new coalition Jan-06 Oct-06 Jul-07 Apr-08 Jan-09 Oct-09 Jul-10 Apr-11 Jan-12government. A new election is expected to be on June 17th amid growing FTSE 100 Index DAX Index CAC Indextension that Greece might default and leave the eurozone. 2
  • 3. Political change in GreeceStock markets declined while investors turned into risk-off mode and Greece’s prominent leader who opposes austerityincrease demand for the US dollar after the recent parliamentaryelection in Greece showed that no party could lead to form a coalitiongovernment.The election results showed that Greek people demanded changes. Alexis TsiprasThey punished the previous government for introducing the austerity SYRIZA, Coalition ofmeasures amid growing unemployment rate and continual decline in the Radical Leftcountry’s GDP. 52 seats, +39Greek increased their votes for the parties that opposed austerity withplans to create job and generate growth.Political change led to an uncertainty whether Greece would not honorits agreement on the austerity in exchange for the bailout and bond %y oy Economic recession in Europeswap in March. 3 2Investors were seen to increase their concern whether Greece would 1default its debt, which could lead to an exit from the euro membership 0and cause the financial panic in Europe. -1Greece is running out of money to pay salary of the government official -2as the government does not have enough tax revenue to pay for all its -3expenses unless additional fund is provided by the eurozone. -4 -5Should Greece leave the eurozone or continue its austerity -6package? How could they affect the volatility and direction of the France Germany Ireland UK Italy Spain Portugal GreeceUSD/THB? 2011 2012 2013 3
  • 4. Greece is likely to stay amid high cost of exitGreece is unlikely to leave the eurozone. And there is no rule that other Greece’s current account 16,000 -60,000eurozone members can kick Greece out. 14,000 -50,000Despite appealing option that Greece could leave the euro area and 12,000 -40,000adopt its old currency for supporting exports and tourism, the sharp 10,000depreciation of the exchange rate is going to lead to economic turmoil 8,000 -30,000and could be more pains than following austerity package and 6,000 -20,000remaining inside the eurozone. 4,000 -10,000 2,000Inflation is likely to go higher with depreciation, which will be more 0 0difficult for Greece to control its macroeconomic stability. 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011The financial system is going to collapse as banks are likely to be shortof liquidity while debt denominated in the euro currency is going to rise. Current Account: Serv ices: Trav el (left, USD mn) Current Account (right, USD mn)Greece’s government debt denominated in the euro currency is also Millions Greece relies on European tourists 18going to rise, affecting the ability of Greece to pay back its debt. 16 14The scenario is full of pains and reminds us about the time of Asian 12financial crisis in 1997. Other eurozone members would not let Greece 10leave for fear that financial crisis in Greece will be contagious to other 8 6eurozone members. Investors are likely to speculate that other PIIGS 4members are going to leave as well, causing bank run and capital flight 2from the region. 0 2005 2006 2007 2008 2009 2010 2011 (Jan-Thus, having Greece in the eurozone would be a better option. Sep)However, how long can the ECB keep injecting money to Greece in thecase that Greece is slowing down its austerity plan. Visitor Arriv als: Europe Visitor Arriv als: non-Europe 4
  • 5. Default is Greece’s last card TonnesIf the ECB stops supporting Greece as Greece chooses not to continue its Gold reserve 9,000austerity package, Greece will have no choice but to default…no money 8,000coming in, no money going out. 7,000 6,000Greece is likely to cut spending in areas that do not affect welfare of its 5,000people much, such as IT, infrastructure, defense and other budget apart 4,000from socio-economic programs. 3,000 2,000Greek government can collect more taxes from the rich while it could get 1,000rid of tax evasion and corruption. 0 India Austria Portugal IMF Italy Netherlands France China Switzerland Russia Japan Venezuela Saudi Arabia Spain Algeria US ECB UK Lebanon Thailand Philippines Belgium Taiwan Germany TurkeyGreece may choose to nationalize banks to increase lending in certainindustries so as to stimulate economic growth. The goal is to generatehigher economic growth, reduce unemployment and eventually pay backloans. Without growth, the economy cannot do anything. % Unemployment rate in Europe 25Greece can sell gold and other reserve for financing its spending, which islikely to cause high volatility in the FX market as well. 20Of course, it is likely to be painful for Greece as its assets will beliquidated and it is likely to solve financial problem only temporarily. 15Greece will eventually need to come back to the capital market when it is 10running out of money and needs to finance its economy. Greece’s creditoralso knows that and will likely to push Greece hard to make Greece honor 5its agreement on the austerity package. Jan-06 Jan-08 Jan-10 Jan-12It’s going to be a game of chicken between the new Greece’s leader Greece Spain Germany France Italyand the European creditors. 5
  • 6. What’s next for the USD/THB?As Greek drama is still on going, we do not think that Greece will leave the Foreign Foreign position (cumulative since 2005) andand stock index position (cumulative since 2005) stock indexeurozone as the cost of exit is likely to be higher than the cost of staying 9,000 1,300within the euro area. 8,000 1,200 7,000 1,100Greece is likely to negotiate with the European creditors to ease the austerity 6,000 1,000and allow Greece to inject more stimulus package to boost its economy. 5,000 900 800The creditors are likely to abide by Greece again and again for fear that 4,000 700Greece’s default would cause financial turmoil in the eurozone. 3,000 600 2,000 500Greece is too big to fail as its default and exit from the eurozone could cause 1,000 400contagion to other members, which could be compared to the cases of Jan-09 May -09 Sep-09 Jan-10 May -10 Sep-10 Jan-11 May -11 Sep-11 Jan-12 May -12Lehman and Asian financial crisis. Foreign holding (USD mn, left ax is) SET Index (right ax is)However, Greece cannot get away easily. Political changes and frustrationamong eurozone members could pressure Greece to reduce its deficit. SET index and the USD/THB 1250 30During uncertainty period until after the next parliamentary election, we arelikely to see higher volatility in the FX market. 1200 30.5The USD/THB could rise to 32.60 within the next coming weeks if the tension 1150about Greece’s exit and default grows. 31 1100However, the eurozone will eventually come up with plans to inject moreliquidity to Greece and allow Greece to remain in the eurozone. 31.5 1050Thus, the USD/THB is likely to fall after Greece reached agreement with its 1000 32creditors. The market will turn to risk-on mode again and capital flows are Jan-12 Feb-12 Mar-12 Apr-12 May -12likely to come back to Asia where the rates of returns are higher than theones in the West. SET Index (left) USD/THB (right, inv erted) 6
  • 7. 7

×