The much-maligned Greek economy has obviously been under some
serious pressure as of late. The country faces strikes, austerity,
and worries over its long term health as it struggles to meet
bailout terms and maintain membership in the euro zone at the same
time.
Still, the country's stock market hasn't exactly been a bad
performer this year-albeit a volatile one-as the market represented
by the
Global X FTSE Greece 20 ETF (
GREK
)
is actually up double digits so far in 2012. Furthermore, over the
last three months, the ETF has added over 40%, suggesting that some
gloom over the nation's future is beginning to dissipate (read
Are the Troubled European ETFs Back on Track?
).
Yet while the market has certainly seen some good news, it could
be in for some trouble in the months ahead, especially if a trend
appears in some of the country's top components, specifically if
firms follow in the footsteps of
Coca-Cola Hellenic Bottling Company (
CCH
)
. This firm is one of the biggest bottlers of Coca-Cola products in
the world, primarily distributing and selling across the greater
European region, and it is also a huge component of the Greek stock
market.
In fact, the firm accounts for over 16% of GREK, making it the
biggest holding of the firm by a decent margin. Yet unfortunately
for Greece-and maybe for GREK as well-the company has decided that
it isn't worth it to be based in and listed in Greece anymore,
seeking safer pastures in Western Europe instead (see
Three Resilient European ETFs Still Going
Strong
).
After all, the stock has undoubtedly been hurt by a risk off
attitude towards Greece in recent years, despite the fact that the
company only does about 5%
of its business in the Greek market. Seemingly, management at the
company is sick of being tied to Greek problems given that they
aren't that reliant on the nation for returns.
Instead, it looks as though CCH will move to Switzerland in
order to make that country its home while it will list shares on
the London Stock Exchange. This will allow the firm to maintain a
position in Europe while still having access to a wide and deep
investor pool at the same time.
Although it remains to be seen how much this will impact
the perception and health of the Greek economy, one thing is for
sure; it will have an enormous impact on the Greek ETF (also read
Is the Ireland ETF No Longer A PIIGS Member?
).
Unfortunately, the
index provider's PDF
about the benchmark isn't exactly helpful when it comes to
detailing what happens when a stock is removed from the underlying
index. It only states that the index will be 'reviewed semiannually
in June and December' although it says it will use market data at
the close of trading in March and September.
This seemingly suggests that the fund will maintain a holding in
Coca-Cola Hellenic for at least a bit longer. However, it goes on
to say that 'a constituent will be deleted from the index when it
is removed from the index' so we could see a quicker removal of the
stock from the fund after all.
When this happens, it will pretty much remove all of GREK's
assets in the consumer non-cyclical space and leave the fund devoid
of stocks in the beverages industry. Furthermore, it will nearly
halve the amount of large caps in the fund, possibly making GREK
more volatile, and potentially more concentrated in a few choice
sectors (also read
The Truth about Low Volume ETFs
).
Whether this negatively impacts the overall return of the fund
though remains to be seen, although it seems certain to make the
product more focused on small cap securities for its exposure.
Either way, this looks to be a bad trend for Greece and their
market, especially if others follow Coca-Cola Hellenic's lead,
possibly making GREK even more volatile in the long term.
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