With perhaps just one day left in October, the Greece ETF has
outpaced all nonleveraged ETFs in the hurricane-shortened
month.
Global X FTSE Greece 20
ETF (
GREK
) rallied a mind-boggling 24% in October and a whopping 68% over
the past three months through Oct. 26. By contrast,
iShares
MSCI EAFE Index (
EFA
), tracking developed foreign markets, added 1.17% for the month
and
SPDR S&P 500
ETF (
SPY
) fell 1.82%. GREK has doubled off its 52-week low from early
June. It leads all global markets year to date with a handsome
30% return.
"I think it will certainly continue as Greece starts getting
its act together," said David Abuaf, chief investment officer at
Hefty Wealth Partners with $200 million in assets in Auburn,
Ind.
The debt-burdened country has agreed on final details with its
international creditors on the terms for its next bailout
installment, the prime minister said Tuesday. But the compromise
on new austerity measures and the country's budget must by
approved by two parliamentary votes.
"This story goes back to the middle of the summer when
(Greece's) 10-year bonds were trading for 17 cents on the
dollar," said Abuaf. "They are now trading closer to 28 cents on
the dollar. They're giving investors 16% yields, though those
figures were closer to 26% in the beginning of the summer.
The value of "Greece's bonds outstanding will need to be cut
to a fifth of what it is currently for investors to lose
money."
Companies held by GREK staged a turnaround by moving their
money and operations into Switzerland, said analysts at Ned Davis
Research in Venice, Fla.
Cola Hellenic, the ETF's largest holding at 15% of assets,
moved its headquarters to Switzerland. Financial firms, which
account for 34% of the ETF, have deposited their money in Swiss
banks.
"Not sure how this is bullish for the banks, but they have
helped move the ETF," said Alejandra Grindal, Ned Davis' senior
international economist, and her colleagues wrote in an
email.
Based on forward 2013 earnings estimates, Greek stocks are
"insanely cheap," said Michael Krause, president of AltaVista
Research in New York.
"Of course, those estimates may prove to be wishful thinking,
particularly for the financial sector," Krause said. "I would
think of GREK almost like an option: investors will either double
or triple their money, or lose it all -- almost."
Greece Recession
Greece's economy is on track to shrink 6% this year and enter
its sixth year of recession next year, when it's projected to
contract 4%, according to the International Monetary Fund. The
country's unemployment rate hit a record 25% in July, with nearly
one in two people in the 15-24 age group unable to find work.
As of the first quarter of 2012, Greece's debt-to-GDP (gross
domestic product) stood at 132.4% -- the highest in Europe.
That's a considerable improvement over 2011, when debt-to-GDP
amounted to 170.6%.