The Global X MSCI Greece ETF (NYSE: GREK), the only U.S.-listed exchange traded fund dedicated to Greek equities, is up 22 percent this year.
That's good for one of the better showings among emerging markets single-country ETFs and there could be reasons to expect more upside ahead for GREK.
After years of scuffling under the burdens of slack economic growth and financial assistance from the European Central Bank, among others, Greece's economy is finally showing signs of life, giving investors reasons to revisit the Mediterranean economy.
“In Q1, the markets were up 15.2% and forecasts put 2019 GDP growth at annualized 2.4%, versus Europe at just 1.3%,” said Global X in a recent research note. “Greece’s improving growth prospects could portend the start of a virtuous cycle for Greece, making it a standout against the weak backdrop of a sluggish Europe.”
Why It's Important
More sanguine expectations for the Greek economy and equity markets are pivotal to GREK's fortunes. The fund allocates about 42 percent of its weight to energy and financial services stocks, underscoring its cyclical tilt. GREK also has a three-year standard deviation of almost 24 percent, or about 1,100 basis points higher than the comparable metric on the MSCI Emerging Markets Index.
“Further powering returns was a recovery in consumer confidence to almost pre-crisis levels,” said Global X. “Private consumption helped drive in strong performance during Q1 within the communication services sector and the casinos & gaming sub-industry. Such improvements follow labor gains with unemployment falling by 3% in 2018 and national account data reflecting improvements in labor productivity.”
The strength of Greek consumers is also important to GREK because the ETF has a 17.30 percent weight to consumer discretionary stocks, its third-largest sector allocation.
A buoyant economy and improving credit profile could foster more upside for GREK, but this isn't a risk-free bet, particularly when the country is holding elections in October.
“Political risk is notable, but with potential upsides as well,” said Global X. “Legislative elections are scheduled for October; however, they could be pushed up to May 26 to coincide with local and European elections. The ruling hard-left Syriza party is likely to demand snap elections to minimize the party’s losses ahead of European elections and before a slowdown in Europe potentially curbs Greece’s progress.”
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