After six years of recession and three years after bailout,
the Greek economy is finally showing some level of growth in
2014. In return for its international bailout, Greece has imposed
several rounds of stringent austerity measures, including
sweeping spending cuts and a series of tax hikes, in an effort to
reform its economy.
Since the recession, the country whose growth contracted more
than 20% is finally expected to see a contraction of just 4.2% in
2013 and a modest growth in 2014. It appears that optimism in the
euro zone along with a strong tourism season will result in an
improvement of the country's GDP (
Has the Euro ETF Bottomed Out?
The country is expected to return to financial market next
year as it continuously strives to fix its public finances. The
debt restructuring program by the government led to a huge
reduction in interest cost on debt.
Moreover, the region for the first time after the disaster
expects to see a budget surplus by the end of the year. With
production level becoming stable, it can be said that the country
may soon bottom out.
Also, banks of the region appear to be in a better position
going forward. Their recapitalization, which became essential
because of heavy losses on their holdings of Greek government
bonds in last year's debt restructuring, is now being
The provision of up to €50 billion ($65 billion) from the
bailout funds should both make up for these losses and leave them
able to withstand a further souring in their private loans, 25%
of which are already non-performing (
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In fact, the region was recently granted a fresh round of
austerity measure after the first review made by the so-called
"troika" comprising the European Commission, the International
Monetary Fund and the European Central Bank.
On the progress made by the region, the troika agreed that
more bailout funds, which so far totalled about €200 billion, or
about $260 billion, will be disbursed to the region. And if
Athens continues with its progress then the euro zone may further
ease its debt load by cutting the interest rate and increasing
the maturities of official loans.
Also, ratings agency Fitch recently upgraded its sovereign
credit rating for Greece by one notch, attributable to the
continuous progress made by it in cutting down its budget
deficit. This resulted in bond yields reaching a three-year low
and the stock market reaching a two-year high.
However, the country still remains the victim of a high level
of unemployment. The jobless rate has reached 27.2%. But the
economy expects the rate to fall if not immediately but by the
end of next year.
Also, the political situation of the region remains weak and
revenues remain below target as a result of the continued failure
to crack down on tax evasion. Also, external shocks may dampen
the outlook of the region (
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ETF to Watch
With Greece on the verge of turning the corner, it appears
that investors are becoming optimistic about the country. In
fact, the ETF tracking the region,
Global X FTSE Greece 20 ETF (
, which turned out to be the worst performer in 2012, is
seemingly gaining traction. The ETF has experienced a huge inflow
of assets in the past two weeks.
With crisis over the Greek economy dissipating along with the
worries of its exit from the euro zone and data on the economy
becoming more optimistic, it seems that the ETF is gaining
momentum after a terrible performance for most of 2013 so
Despite the problems looming over the country, GREK has
actually gained 15.85% year to date. In fact, its return is just
marginally below the broader market fund,
SPDR S&P 500 (
. The last few trading sessions have gone in favour of the ETF
leading to a reversal in trend in its performance (
Big Gains in Greece ETF, Can It Last?
GREK, which manages an asset base of $42 million, is home to a
small basket of 24 companies. The fund charges a fee of 65 basis
points on an annual basis.
However, it should be noted that the ETF has a significant
exposure in the consumer staples and consumer discretionary
sectors of the region. Both account for about 40% of the asset
base. This may act against the performance of the ETF as the
region still faces a high level of unemployment.
However, the positive development in banks may positively
impact the ETF as financials occupies the third position in the
fund with an asset share of 14.8% (
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Although the Greek economy is showing some signs of stability
it has a long way to go. Shares of the region still appear to be
at depressed levels and a lot need to be done to actually allure
investors' attention. Currently we have GREK with a Zacks ETF
Rank of 4 or 'Sell'. This suggests that the longer-term picture
is still very weak for this fund.
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GLBL-X/F GREC20 (GREK): ETF Research Reports
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