UBS said in an equity strategy note on Tuesday that it expects continued volatility ahead of the Greek referendum this weekend, with polls and political comments by Greek and Eurozone leaders driving markets.
The biggest exposure to Greece at a country level is in Spain, Portugal and Italy, said the bank, adding that the UK and Switzerland are the relative safe havens outside the Eurozone.

In terms of sectors, banks, insurers and diversified financials are the most correlated to sovereign risk, said UBS.

It said banks are doubly-exposed: they are the sector with the highest historic correlation to Greece and the weight of the sector is disproportionately made up of periphery country stocks.

“Whilst this makes banks volatile in the near-term, the fundamentals still appear attractive to us,” remarked the bank, noting that lending growth indicators are rising, relative earnings momentum is now positive and valuations are still attractive.

Looking at the immediate reaction to the election result in Greece, UBS noted that banks, diversified financials, capital goods and energy were among the sectors which showed the worst reaction.

However, the energy sector was most likely responding to the drop in the oil price – which was trading below $50 at the time of the Greek election – rather than reacting to events in Greece. At the other end, household goods, chemicals, utilities and beverages were among the best performers.

“The obvious risk is a messy ‘Grexit’ with severe contagion, which is currently a relatively low probability in our macro team’s analysis,” said UBS.

BNP Paribas, ING, Societe Generale, Santander, Generali, UniCredit, Erste Bank, Barclays, and Banco Popular were among the 30 stocks listed by UBS as having the most negative correlation to sovereign risk.

On the other hand, GlaxoSmithKline, Nestle, Novartis, Imperial Tobacco, Diageo, Royal Dutch Shell and Fresenius Medical were among the list of the 30 stocks with the most positive correlation.