On Sunday, Greece overwhelmingly voted against the austerity package offered by lenders. This poses serious questions about the economic future of the nation and whether it will continue to use the Euro. On the other hand, lenders will also have to ponder about their next move, which may have serious implications for the common currency bloc.
An Overwhelming 'No'
In the recent past, several opinion polls have shown that a vote on the issue of continuing to be members of the common currency bloc would be a close affair. However on Sunday, 61% of citizens voted against adopting further austerity measures.
This is in keeping with Prime Minister Tsipiras’ recent statement and the position of his left-wing Syriza party. Time and again, Tsipiras’ government has presented their own terms for an agreement and multiple negotiations have failed to break the deadlock.
An economic crisis lasting more than seven years and youth jobless rates as high as 50% may have forced the issue. Besides, the measures called for reducing public debt drastically and involved unpopular measures such as pension reform.
What’s Next for Greece?
The perils ahead for Greece are enormous. Last week, the IMF said the country would need a significantly large amount of funds for debt relief. Greece would need 50 billion euros ($55 billion) in fresh funds almost immediately it said.
Additionally, citizens will find it difficult to make do with the 60 euros ($66) they can withdraw from cash machines every day. One option for the country is to issue a parallel currency, even though the government has stated more than once that such a measure was unlikely.
The prime minister has said that he would continue negotiations, backed by a fresh mandate. It is likely that he will continue to push for softer austerity measures and a renegotiation of existing terms.
Options for Lenders
It seems that the odds for a “Grexit” are growing stronger every moment. Leaders from the Eurozone have indicated that the immediate resumption of talks is unlikely. The ECB Governing Council is likely to meet today to decide whether they can continue to offer emergency liquidity to the country.
However, they will have to examine the medium and long-term implications of the results of the referendum very carefully. The “No” vote has caused grievous harm to the common currency. With the United Kingdom also likely to leave the Eurozone this year, the entire unification project is being threatened.
Lenders now have to consider whether they will take extreme positions or agree to a compromise. If they refuse to soften their terms, it could have serious implications for the Eurozone as well as other world markets.
Memories of the recent debt crisis continue to linger and are linked to the dilemma over Greece. This is something leaders like Angela Merkel and Francois Hollande must carefully consider before taking a final call on the issue.
Our Choices
Shockwaves of the Greece vote may be felt in domestic markets and also across the world. However, foreign diversification is an important consideration for any investor.
Below we present four stocks which offer the choice to diversify abroad. However, none of these are from Eurozone countries. Each of them also has a good Zacks Rank.
Alps Electric Co. Ltd. APELY is a Japan-based company mainly engaged in the manufacture and sale of electronic components and audio equipment.
Alps Electric holds a Zacks Rank #1 (Strong Buy). The company has expected earnings growth of 97.7% for the current year. The forward price-to-earnings ratio (P/E) for the current financial year (F1) is 16.16.
Enersis S.A. ENI through its subsidiaries, generates and distributes electricity in Chile, Argentina and Peru. The company also develops real estate projects and provides engineering and other services.
Apart from a Zacks Rank #1 (Strong Buy), Enersis has expected earnings growth of 27.3% for the current year. It has a P/E (F1) of 12.56x.
Kubota Corporation KUBTY is the world's largest maker of small tractors and Japan's second largest manufacturer of farm equipment.
Apart from a Zacks Rank #1 (Strong Buy), Kubota has expected earnings growth of 15.6% for the current year. It has a P/E (F1) of 15.22x.
Sappi Limited SPPJY is the world's leading producer of coated fine paper and is based in South Africa. They hold major market shares in Europe, North America and Africa.
Sappi holds a Zacks Rank #2 (Buy) and has expected earnings growth of 12.9% for the current year. It has a P/E (F1) of 9.85x.
Regardless of the final outcome of the current situation, European markets are likely to feel jittery in the days ahead. This is why it may be best to look at other foreign options at the moment. Adding these stocks from abroad to your portfolio would make for a prudent choice.
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