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'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%.
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