Worried about Grexit? Consider these safe havens

What would happen if Greece exits the euro?

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“Nobody knows, because euro [membership] is supposed to be irreversible,” says Luc de la Durantaye, managing director of asset allocation and currency management at CIBC Asset Management. He manages the Renaissance Optimal Inflation Opportunities Portfolio.

In fact, “there’s no legal framework for how a country would move out of the Eurozone.”

Adding to the uncertainty, he says, is that “we’ve also seen a number of deadlines not being real hard deadlines because of that lack of legal framework, and because of [euro members] wanting to compromise.”

Read:

• Updated: No bailout deal or extension for Greece
• Greece delays repayment of IMF loan

For now, tell clients a Greek exit wouldn’t happen automatically, or immediately, if the country defaults, says de la Durantaye. The process would be gradual, thereby lessening market shocks.

Another reason markets wouldn’t freefall, he adds, is that the Eurozone has put a number of new safeguards in place. For instance, its banking system is better capitalized. “So it’s less fragile to a Greek collapse. [And], the ECB has an asset-purchase program that becomes, in effect, the buyer of last resort, which is mitigating the sovereign bond impact of a potential Greek exit.”

Read: Can Greece’s Tsipras keep his election promises?

But, in the short term, fears are still creating volatility and downside risk for equity markets. To hedge that risk, de la Durantaye suggests investors focus on U.S. treasuries and the U.S. dollar, given the strength of the U.S. economy and its limited exposure to Greece.

Read: What the strong U.S. dollar means for Canadian investors

Other potential havens include the Swiss franc, the Japanese yen and gold — these may not be as effective, he says, but they could still insulate client portfolios.

For more on the Eurozone, read:

How new EU rules for cross-border estates impact Canadians

How negative rates affect economies

What European QE means for portfolios

Melissa Shin

Melissa is the editorial director of Advisor.ca and leads Newcom Media Inc.’s group of financial publications. She has been with the team since 2011 and been recognized by PMAC and CFA Society Toronto for her reporting. Reach her at mshin@newcom.ca. You may also call or text 416-847-8038 to provide a confidential tip.