Global X FTSE Greece 20 ETF (NYSEArca: GREK) was up sharply for the second straight day on Thursday as markets await crucial elections this weekend that could determine the country’s fate in the euro.
The Greek ETF rose nearly 8% in early U.S. trading Thursday although elsewhere in Europe, yields on 10-year Spanish government bonds jumped above 7% to a fresh euro-era high. Greece’s stock market is down over 90% from the peak.
Greek stocks and banks in particular are rallying as voters prepare to return to the polls this weekend after the inconclusive election in May. If leftist party Syriza prevails, investors are concerned Greece may end up leaving the euro.
On Thursday, Bloomberg News reported that Alexis Tsipras, leader of the Syriza party, “aims to win over voters by promising an end to punishing austerity while keeping the European Union’s financial-aid flowing.”
Greece is struggling with an unemployment rate over 20%, a contracting economy and austerity measures.
“Tsipras’s pledge to abrogate the terms of the bailout amounts to a bet the EU will stop short of kicking Greece out of the 17-nation euro,” Bloomberg reported.
Tsipras said he expects the EU will try hard to keep Greece in the euro even if he wins elections and makes good on his pledge to repeal austerity measures required in the European bailout, according to a separate report.
“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 this week.
“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.
Greece’s stock market is rallying amid reports Greeks are draining cash from their bank accounts and stockpiling food. [Greece ETF Rises Amid Bank Withdrawals, Food Stockpiling]
Dow Jones Greece Stock Index