While many are worrying that a Greece debt default will rock the stock market and financial world the way the Lehman Brothers collapse did in 2008, Mark Hulbert says there are several examples of sovereign debt crises that didn’t lead to long-term market woes or deep global crises.
“Prior to Greece’s recent difficulties, there have been at least four other occasions over the last two decades in which a potential sovereign default sent shockwaves throughout the markets,” Hulbert writes for MarketWatch. “The stock market, on average, rose over the two years following those previous crises.”
Hulbert points to the Mexican peso devaluation that started in late 1994; the “Asian contagion” that hit in 1997; the Russian ruble devaluation of 1998; and the Argentina debt/currency crisis of late 2001. On average, the market was 17% higher a year after those crises hit the headlines, Hulbert says, and it continued upward well into the second year.
The same pattern has so far shone through since the Greece default questions came to the fore in late 2009, Hulbert says. He cautions, however, against drawing conclusions based on a limited number of these debt crisis examples. His advice is broader in nature: “The general lesson to draw from all this is that finding historical events that ‘rhyme’ with what’s going on right now involves a lot of picking and choosing,” he says. “The bears pick those precedents that bolster their pessimistic outlook, while the bulls gravitate to those analogs that reinforce an optimistic forecast.”