FRANKFURT (The Street) -- Whatever happens with Greece, U.S. investors are in a much better position to weather a bad ending then they were in 2011, when Greece's financial woes first grabbed the market's attention.
But that doesn't mean financial markets won't be reacting to every twist in turn in the seemingly endless Greek debt crisis.
"There are a couple of big differences between the current situation and the previous Greek crisis in 2011 that indicate that impact on U.S. investors should be less," said Rob Waldner, chief strategist of Invesco Fixed Income, which has about $238 billion under management.
The biggest difference is that the private sector will not shoulder the brunt of whatever happens.
As recent data from Open Europe, an analyst group covering the region, show, 80% of Greece's financial obligations are not to the private sector but the International Monetary Fund (IMF) and the European Central Bank as well as sovereign governments.In 2011, by comparison, most of the government's debt was held by private investors. Furthermore, foreign banks held just $46 billion of Greek debt at the end of last year, compared with $300 billion in 2010, according to Wells Fargo ( WFC) and the Bank for International Settlements.
Waldner said the current situation is well priced by the market. That said, no matter what happens, he expects any resolution of the situation "is likely to be messy," and "will cause market volatility, and hence indicates that market participants should keep portfolio risk low and keep some powder dry."
U.S. investors are very likely to feel short-term aftershocks of a Greek default, should that occur. Of the 30 stocks in the Dow Jones Industrial Average, 27 have business that is directly affected by Europe. American investors have also been looking beyond the S&P to the eurozone for better performance on investments for the last 12 months. The popularity of hedged euro exchange-traded funds is just one aspect of this story.
Markets as well as Greek bonds rallied on Monday as European leaders convened 11th hour talks on the Greek crisis in Brussels. Foreign heads of state and finance officials are meeting to stave off both a Greek credit default and potential exit from the EU after Greece made additional concessions over the weekend.
That said, nobody is expecting a deal by tonight.
According to Jeroen Dijsselbloem, a Dutch politician who is president of the Eurogroup, "It is impossible to have a final assessment [of the new Greek proposals]....We'll see if we have the basis for final talks."
Commissioner Pierre Moscovici also told the press that Greek proposals do represent "progress," although more needs to be done.
Spanish Finance Minister Luis de Guindos said "We still have time, but less and less."While both Greek default and EU exit seem increasingly remote this week, if there is no progress on a final deal Barclays expects to see "immediate negative market reaction consistent with a crisis scenario." According to an analyst's report released on June 18, Barclays believes that "from July the [European Central Bank] would...force Greek authorities to impose capital controls in order to avoid meltdown in the Greek banking system."
Some analysts believe a default could make value of U.S. stocks dip between 5% to 10% over the summer with a subsequent rally in bonds to reflect a slowing global economy and the attempts of financial institutions to ring fence extended exposure to Greece directly. The ECB's current quantitative easing strategy is pumping 60 billion euros a month into the regional economy, which would also limit "market contagion" if not collapse in a worst-case scenario.
Analysts at Deutsche Bank wrote that "a last-minute agreement between the Greek side and its creditors" is the "marginally more likely outcome. In the event of no agreement, a referendum on eurozone membership and/or the agreement would be the most likely outcome, possibly taking place under limits to ECB bank financing."
As of the last week in June, a final deal seemed at least to be in the offing. With the Federal Reserve also announcing last week that U.S. interest rates would likely remain flat until at least September, German Chancellor Angela Merkel reiterated a deal with Greece is still possible, although probably not forthcoming by Monday night. Late last week, the ECB also announced that it was extending emergency help to avert a brewing Greek bank run in thatcountry.