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Greece ETF Looks For A Clean Break

ETF Professor

The Global X MSCI Greece ETF (NYSE: GREK), the only U.S.-listed exchange-traded fund dedicated to Greek stocks, is up 2.72 percent year-to-date. GREK is easily topping the 2018 performance of the MSCI Emerging Markets Index, a relevant comparison because Greece is classified as a developing economy.

Greece is nearing the end of its bailout program and some market observers speculate that after years assistance from larger, more financially sound European nations, Greece may be able to exit the assistance program without having to enter another.

What Happened

"After more than eight years, there is a real prospect of Greece not being under an economic adjustment programme once the current bailout expires in August,” IHS Markit said in a recent note. “Its economy is finally growing, bond yields have declined significantly, and the political situation has remained more stable than many had feared.”

Up 34.7 percent over the past 12 months, GREK is one of the best-performing single-country emerging markets ETFs over that period in what has been a long road back for Greek stocks. Over the past three years, GREK is up just 12.2 percent, trailing the MSCI Emerging Markets and MSCI EMU indexes by large margins.

Why It's Important

If Greece can break free of Eurozone economic assistance, it would signal not only increased financial health, but perhaps a more sanguine political environment. Put simply, the decision to not seek additional bailout assistance after August lies with Greek policymakers.

“Assuming the economy continues to grow, the fourth review goes smoothly, and market conditions remain benign, the decision on whether to seek a clean exit or request a credit line will be a political choice,” said Markit. “A Greek exit from its bailout would send a strong signal that the country has started to recover following a decade-long crisis, and the government has strong incentives to go down this route.”

Increased financial temerity may also foster more investor confidence regarding Greek banks. Financial services stocks account for 31.3 percent of GREK's weight.

What's Next

A clean exit from current bailout program isn't a foregone conclusion for Greece. An uptick in political volatility or slowing economic growth are among the factors that could lead the country to ask for another line of credit from its creditors.

“Greece's inability to pass necessary reforms/measures and to complete the last bailout review in time, a deterioration of economic conditions in Greece and a non-conciliatory attitude by Greek officials, resembling the 2015 situation under then finance minister Yanis Varoufakis, which would complicate relationships with international creditors and trigger market concern and a spike in Greek bond yields,” said Markit.

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