By itself, it was the worst week for European equities since December. Viewed another way, it was just a few days of gains unwinding -- though more volatility is virtually assured.
The Euro Stoxx 50 Index lost 5 percent in the week after Greek Prime Minister Alexis Tsipras announced a surprise referendum on creditors’ bailout demands. The drop did little more than erase the previous week’s rally and send European stocks back to where they were in mid-June, with volatility near a three-year high.
The appetite for equities in Europe has oscillated day to day as developments on Greece’s debt negotiations dominated investor sentiment. With traders waiting for Sunday’s snap vote that polls show is too close to call, Yogi Dewan at Hassium Asset Management predicts another week of extreme moves -- one way or the other.
“This week really felt like a game of chess which just needs to be played out,” said Dewan, founder of Hassium, which oversees $1 billion from Gerrards Cross in the U.K. “You can be sure that we’ll get more sharp moves on Monday. It’s going to be another turbulent week.”
This week’s Euro Stoxx 50 decline followed a 4.8 percent jump in the previous period. The Stoxx Europe 600 Index, which includes shares from the U.K., Switzerland and the Nordic countries, fell 3.4 percent in the past five days.
A poll commissioned by Bloomberg News showed 43 percent of Greeks intend to reject creditor demands and 42.5 percent will accept the conditions tied to financial aid. While Tsipras is campaigning for a “no” vote, the rest of the euro area says a clear “yes” could lead to continued aid. Greece’s euro-area bailout expired on June 30, the same day it missed a $1.7 billion payment to the International Monetary Fund.
Markets in Europe’s periphery suffered the most this week, with equity benchmark gauges in Spain and Italy falling more than 5 percent. Germany’s DAX Index, which was among the biggest gainers in the first quarter, became the worst performer in the developed world in the second. It lost 3.8 percent in the past five days.
The Athens Stock Exchange was closed all week as Greece kept its banks shut and imposed capital controls to shore up its financial system. With an exchange-traded fund listed in Europe suspended, the U.S. version was the only way to bet on the Greek equity market. The Global X FTSE Greece 20 ETF sank 19 percent on Monday to regain about half its losses the rest of the week.
All 19 industry groups in the Stoxx 600 fell, led by miners and banks. Banco Popular Espanol SA, Banco Comercial Portugues SA and Banca Monte dei Paschi di Siena SpA lost at least 8.5 percent.
Among the week’s biggest movers, Electrolux AB slumped 12 percent after the U.S. government sued to block the Swedish company from taking over General Electric Co.’s appliance business. LVMH Moet Hennessy Louis Vuitton SE fell 7.9 percent as Bank of America Corp. lowered its rating on the stock to the equivalent of a sell. Outokumpu Oyj and ArcelorMittal SA led losses for commodity producers as data showed the slowdown in China’s steel industry deepened.
Some traders, investors and strategists remain bullish, sticking to their targets for European stocks and using the downturn as an opportunity to buy. They see any outcome on Greece as a positive, as long as negotiations don’t drag on for much longer.
“At the end of this year, this is going to be largely immaterial,” Patrick Armstrong, chief investment officer at Plurimi Investment Managers in London, told Anna Edwards on Bloomberg Television. “We’re using moments of the big selloffs to be adding to our European positions that are already cheap. The market is basically obsessed with Greece right now.”
The Euro Stoxx 50 trades at 14.8 times estimated profit of its members, near the lowest valuation since February.
Investors added $1.5 billion to European equity funds in the week through July 1, according to a Bank of America Corp. report citing EPFR Global data. In the previous period, they had poured $3.4 billion into the funds, the most in 11 weeks.
“We’re staying on the sidelines until we get some sort of agreement on Greece,” said Dirk Thiels, head of investment management at KBC Asset Management in Brussels. His firm oversees about $231 billion. “The road until then will be quite bumpy. At least you can say it’s making the summer a bit more exciting than usual.”