LONDON — As Greek officials opened up the door for new negotiations with creditors, U.S. equities reversed steep declines and finished the day with impressive gains – especially in the U.S. retail sector.
Major European and Asian indices didn’t fare as well since markets closed prior to late-developing news that Greek prime minister Alexis Tsipras was offering broader economic reforms to creditors. Moreover, ongoing bearish activity in the Chinese equity market spooked global investors with exposure in those regions, while pushing down U.S. stocks that are Chinese-backed businesses.
As a result, the Dow Jones Industrial Average gained 0.5 percent to close at 17,776 while the S&P 500 gained 0.6 percent to finish at 2,081. The S&P Retailing Industry Group index rose 0.9 percent to close at 1,152. Some top retail gainers were J.C. Penney Co. Inc. with a 4.9 percent gain to $9.16 and Nordstrom Inc., which rose 3.6 percent to $77.96. Kohl’s Corp. gained 3.4 percent to close at $64.96.
Regarding Chinese-backed companies impacted by the bear market in that country, shares of Alibaba Group Holding Ltd. ended the day with a 0.8 percent decline to $79.58 – which compares to a 3 percent decline earlier in the day. And after dropping nearly 12 percent in the morning session, shares of JD.com Inc. closed the day with a 4.1 percent decline to $30.58.
Earlier in the day, the Hang Seng fell 1 percent to 24,975 while the Shanghai index dropped 1.3 percent to close at 3,727. The Nikkei 225 lost 1.3 percent to finish at 20,376. In Europe, uncertainty over Greece’s future trampled stocks, with the Milan FTSE MIB dropping 3 percent to close at 20,958 and the Frankfurt DAX losing 2 percent to finish at 10,676. The Paris CAC 40 lost 2.3 percent to close at 4,604 and London’s FTSE declined 1.6 percent to finish at 6,432.
Regarding China, Mark Miller, equity analyst at William Blair & Co., said in a research note that he believes a pullback in the share price of JD.com “is attributable to the broader weakness in China equity markets rather than company-specific factors.” He noted the company’s closest competitors have all been trading down in recent sessions. Miller maintains an “outperform” rating on the stock.
In a research report by global mergers and acquisitions law firm Baker & McKenzie, the authors acknowledged annoying bumps in the road in regard to the overall economy in China. A slowdown is expected, but China’s economy is expected to show growth in the near- and long-term. Which is why the M&A firm is bullish on dealmaking in the country.
“Despite a slowdown in China, we expect M&A transactions to pick up further this year to $605 billion [U.S. dollars] and the strong economic fundamentals of the emerging Asia economies will help the region reassert itself as one of the world’s most dynamic growth stories next year,” the researchers said in the report. “This will help regain investor confidence, boost stock prices and drive strong rises in transactions from 2016 to 2018.”
In the meantime, investors are looking for opportunities elsewhere such as U.S. treasuries and equities, the latter evidenced by today’s uptick in stocks. But in Europe, Greece’s economic conditions are top-of-mind. The European Central Bank has yet to decide whether to continue shoring up Greek banks with emergency funds before they collapse, which could happen as early as this week, and uncertainty is hanging like a black cloud over the country after Greece voted to reject bailout measures proposed by its creditors.
Designers, industry leaders and analysts – not to mention Greece’s creditors – remain puzzled about what the “no” from Sunday’s referendum will mean for the future of Greece.
Most industry leaders see the problem as a political one rather than a business one and believe the sooner a solution is found and stability restored — with Greece remaining in the euro zone — the better.
“It’s much more a political issue at this stage, not a business issue,” said Ralph Toledano, president of the Fédération Française de la Couture, du Prêt-à-Porter des Couturiers et des Créateurs de Mode. “I am worried because you know how it starts, but you don’t know how it ends up,” said Toledano, who is also president of the fashion division of Puig.
“I would like Greece to find an agreement where they definitely stay, but if it’s to go to another crisis in six months, better stop it right now. I don’t think Greece going out of the euro would be good news for Europe in general,” he added.
Mario Ortelli, senior research analyst of luxury goods at Sanford C. Bernstein in London, said it’s too early to say if there will be an effect from the “no” vote. “If the European Union can reassure the market that there is no impact on the euro, then it is just a storm in a glass of water.”
The Greek-born, London-based designer Sophia Kokosalaki, said while she is proud the Greek people stood up for themselves, and reminded Europe what democracy is, she said a swift agreement on the country’s debt was necessary.
“The country’s debt is not sustainable, and the country’s leaders need to come together and agree on a clear plan. They need to make an agreement now to avoid the worst,” said the designer. As reported, last Tuesday Greece failed to pay its 1.6 billion euro, or $1.78 billion, debt to the International Monetary Fund, and has been seeking financial aid from its creditors.
Kokosalaki also pointed to a recent RBS Economics report saying Greece’s 25 percent fall in gross domestic product since 2008 is comparable to that of Italy in the years after World War I and the U.S. during the Great Depression.
The designer, who makes knitwear, jewelry and accessories in Greece, said if no agreement is reached she fears for the tourism industry – which represents 20 percent of the country’s income and for Greece’s manufacturers and workshops. “Who is going to trust them and work with them in the future?”
Kokosalaki wasn’t the only Greek designer to express an opinion on the country’s future: Marios Schwab Instagrammed a picture of a demonstrator carrying a “no” sign, while Mary Katrantzou posted an image of the Greek and European flags flying together with the word “yes.”
Katrantzou told WWD: “It’s hard to watch your country go through such a critical time with banks remaining closed and faced with an uncertain future. I watched as Greeks rejected the terms to the bailout and the austerity measures on Sunday. I deeply hope that this does not mean an exit from the euro or the EU. This is not what Greeks want — my family and friends are in Greece — and Europe is our natural home. I really hope that the Greek government will put forward a proposal, whose terms are fair and can be accepted at the emergency euro-zone summit.”
While some of those interviewed raised the specter of contagion to other economies in the euro zone, others believe the Greek risk will be limited. One Milan-based analyst pointed to “the quantitative easing launched by the European Central Bank, which is ready to buy government bonds avoiding the expansion of the spreads; structural reforms made in the other peripheral countries, and an economic cycle that is improving thanks to a favorable exchange rate and a low cost of petrol.”
Others say the crisis could well be filled with opportunity, not only for Greece but for Europe. “Such a complicated situation is a take-it-or-leave-it one that could prompt the European political class to consider whether they want to work to create the United States of Europe rather than a regrouping of small countries,” said Armando Branchini, deputy chairman of Milan-based InterCorporate consultancy.
“This is an opportunity to strengthen Europe economically and financially while strengthening its political institutions. Sometimes the most sage decisions are taken outside the time limit. For sure, the situation in Greece was well-known for the past five or six years,” he added.
Michelle Grant, head of retailing at Euromonitor International, said there are a number of options still on the table — and a chance to help Greece rebuild. “Is Europe going to take a strong position and kick Greece out? Will it kick the can on Greece’s debt and obligations? Or will it let Greece stay in and reduce its debt to a manageable level? The big question is: How will Germany respond?”
Grant said Euromonitor is actually projecting minimal retail growth over the next five years in Greece due to retailers — and consumers — having adjusted to the new normal of a crisis-hit economy. That said, if Greece exits the euro, or the economy begins to disintegrate, all bets are off.