Greek Equity ETF Sinks On Uncertainty
Greek equities have tumbled in the past few days, with funds such as the Global X FTSE Greece 20 ETF (GREK | C-69) slipping more than 20 percent in three days. Rising political instability ahead of a key parliamentary vote on Dec. 17 that could bring an anti-austerity leftist president to power is fueling the downward momentum there.
It’s in the interest of both the European Central Bank and the eurozone to keep Greece’s austerity measures in place as part of a bailout program that’s now been extended by two months. That’s because the ECB and other national governments now hold much of Greece’s debt following a debt restructuring in 2012.
But popular opinion in Greece is increasingly against austerity measures and against outside influences on domestic issues, according to geopolitical think tank Stratfor. In fact, a recently proposed budget for 2015 that included tax hikes and cuts to government spending was met with protests and opposition throughout the country, Stratfor said in a commentary today.
“The Greek government is fighting at home and abroad to remain in power until the end of its term in mid-2016,” Stratfor said. “Greece and its creditors will reach an agreement on a new package of financial aid, but Athens’ political and financial problems will not be over any time soon.”
“The next three weeks will be crucial for the survival of the Greek government and, once again, political developments in Greece will have repercussions across the eurozone,” the think tank added.
GREK Tough Slog
To ETF investors, accessing Greek equities isn’t easy. Yes, GREK tracks a market-cap-weighted index of 20 Greek firms, but it’s the only ETF to tap into that market exclusively. The last three days have seen the fund slip nearly 21 percent, putting its year-to-date losses at roughly 40 percent, as the chart below shows.
Chart courtesy of StockCharts.com
Apart from GREK, exposure to Greece is hard to find, but can be seen in broad baskets of European equities here and there. For instance, the SPDR S'P Emerging Europe ETF (GUR | F-87) allocates only about 7 percent to Greece. The fund, which tracks a market-cap-weighted index of publicly traded companies domiciled in emerging European markets, has only $55.7 million in assets, and has now bled roughly a quarter of its value year-to-date.
The Vanguard FTSE Europe ETF (VGK | A-98)—the largest Europe-focused ETF, with nearly $12 billion in assets—has Greece representing only about 0.2 percent of the mix. The fund is down 5 percent so far this year.
What’s ahead? More uncertainty.
According to Stratfor, no matter who comes to power—or stays in power—in Greece, managing the country’s massive debt will remain a key challenge. And an easy solution will be elusive.
Current growth projections of 2.9 percent next year are deemed “too optimistic,” and the fiscal gap in 2015 promises to remain wide, at about €2.5 billion euros, the ECB, IMF and the European Union estimate.
That reality should keep uncertainly rippling through the country and through the eurozone.
