Greece Votes “No” But Uncertainty Continues

Greek voters overwhelmingly rejected creditors’ demands for more austerity in exchange for bailout funds, in a referendum on July 5. More than 61% of voters supported Prime Minister Alexis Tsipras’s appeal for a “no” vote. However, what the Greek public voted on was not explicitly around whether or not Greece should stay in the Eurozone, or continue to use the Euro. Rather, Greeks were asked whether or not Greece should accept the current terms and conditions of accessing bailout funds from its creditors. The Greek government has acknowledged that this referendum result does not represent a mandate to break from Europe, and has positioned the result as strengthening Greece’s positioning in further negotiations with its creditors. However, many of Greece’s creditors had indicated already last week that a “no” vote could be considered a vote to leave the Eurozone. Shortly after the referendum, Finance Minister Yanis Varoufakis announced his resignation, in an attempt to ease future negotiations with Greece’s creditors. A replacement will be announced this week.

What has changed?

Despite the celebratory mood in Athens following the referendum results, the reality is that Eurozone membership is in question, and Greek banks are running out of cash and facing the danger of collapse. While Greeks have given their government a directive to negotiate more aggressively for a deal, non-Greek Europeans have not given their governments a mandate to acquiesce to Greek demands. The outcome of the referendum has increased uncertainty around the situation, and likely increased the probability of Greece exiting the Eurozone.

What will happen next?

Everything now hinges on European reaction. Emergency negotiations start again this week with Euro-area leaders meeting in Brussels and conference calls among the European leaders. It remains unclear when Greek banks will re-open; however, some reports have indicated they will remain closed until at least Friday, July 10.

What is MD’s view?

The best and most likely outcome for the Eurozone and financial markets remains a negotiated deal on bailout terms, in particular, ahead of the July 20th date when approximately €3.5 billion of Greek bonds held by the European Central Bank mature. We believe that the contagion risk from the Greek banking sector remains lower than in previous years, as the European Central Bank has additional tools to stem any negative fallout from the situation. The issue remains highly political however, and very uncertain in the near term.

How are MD portfolios and funds positioned?

We continue to have limited direct exposure to Greece’s financial markets. Our six to 24 month view continues to see more upside from developed international equity markets relative to U.S. equity markets. We continue to encourage you to work with your MD Advisor to maintain a portfolio that is aligned to your purpose and time horizon, and well positioned to handle near-term uncertainty related to Greece, or other market activities.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. To obtain a copy of the prospectus, please call your MD advisor, or the MD TradeCentre at 1 800 267-2332. The MD family of mutual funds is managed by MD Financial Management Inc., a CMA company.

The information contained in this document is not intended to offer foreign or domestic taxation, legal, accounting or similar professional advice, nor is it intended to replace the advice of independent tax, accounting or legal professionals. Incorporation guidance is limited to asset allocation and integrating corporate entities into financial plans and wealth strategies. Any tax-related information is applicable to Canadian residents only and is in accordance with current Canadian tax law including judicial and administrative interpretation. The information and strategies presented here may not be suitable for U.S. persons (citizens, residents or green card holders) or non-residents of Canada, or for situations involving such individuals. Employees of the MD Group of Companies are not authorized to make any determination of a client’s U.S. status or tax filing obligations, whether foreign or domestic. The MD ExO® service provides financial products and guidance to clients, delivered through the MD Group of Companies (MD Financial Management Inc., MD Management Limited, MD Private Trust Company, MD Life Insurance Company and MD Insurance Agency Limited). For a detailed list of these companies, visit md.cma.ca. MD Financial Management Inc. provides financial products and services, the MD Family of Funds and investment counselling services through the MD Group of Companies. MD Financial Management Inc. is owned by the Canadian Medical Association.

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