An ETF that allows investors to trade Greece’s stock market should see above-average volume this week as markets speculate on the outcome of a crucial June 17 election.
Greek voters are returning to the polls after the inconclusive election in May. If leftist party Syriza prevails, investors are concerned Greece may end up leaving the euro.
Greece continues to spiral despite multiple bailouts as the country wrestles with an unemployment rate over 20%, a shrinking economy and austerity measures.
“Given the gravity of the European problem, not just Spain, people are kind of waking up to the fact that this is something but not enough,” said James Dailey, portfolio manager of TEAM Financial Asset Management, in a Reuters article Monday.
U.S. stocks reversed into negative territory Monday after strong premarket gains as enthusiasm for Spain’s bailout request waned.
“However, a more important hurdle to financial stability will come with next Sunday’s Greek election. Opinion polls are banned in the two weeks leading up to the Greek election, so investors will have to decide themselves whether Ireland’s acceptance of the fiscal treaty and Spain’s bank bailout are more likely to convince Greek voters to stay the course with Europe, by voting for the center-right New Democracy party, or effectively unilaterally reject austerity, by voting for the far-left Syriza party,” said JP Morgan Funds chief global strategist David Kelly in a note Monday.
“The latter choice could, in the extreme, result in a disorderly default by Greece on its foreign debt – an action which would be catastrophic for Greece and a huge setback for Europe,” Kelly wrote. “The two parties were effectively in a dead heat in polls conducted at the end of May, so this issue is too close to call and much too close for financial market comfort in the week ahead.”
The Greek ETF was down more than 30% year to date heading into Monday’s action.
“Uncertainty in Europe will lead to higher rates of volatility in the markets with larger than normal intraday swings,” said Randy Frederick, managing director of active trading and derivatives at Charles Schwab, in comments emailed Monday. “Spain’s sovereign bond auction last Thursday went better than expected; however, Fitch downgraded their debt and the news of a bank bailout has resulted in huge outflows of cash.”
Global X FTSE Greece 20 ETF