An exchange traded fund tracking Greece’s stock market recovered 5% on Tuesday from its record low and should continue to see plenty of volatility leading up to the pivotal election in June.
Global X FTSE Greece 20 ETF (NYSEArca: GREK) was down about 33% year to date heading into Tuesday’s action on worries the financially troubled country will leave the euro.
“Financial markets this week will continue to focus on Europe and particularly Greece in the run-up to the June 17 election. The problems of Greece are well known. The nation is in an economic depression with an overall unemployment rate of 22% and output falling fast,” says JP Morgan Funds chief market strategist David Kelly. “However, in return for financial aid, Greece’s European neighbors are demanding further austerity to reduce their budget deficit.”
Greece is set to hold a second election in mid-June that could derail the European bailout.
“For now, the views of Greek voters seem to be trending in the direction European leaders would like, whether as a result of quiet outside pressure or the realization that a vote for the far-left really could mean an exit from the euro, a currency that the vast majority of Greeks like and want to keep,” Reuters reported Tuesday.
Greece’s economic problems, which also include tax evasion, have not been solved although it was the first country to boil over in the Eurozone sovereign debt crisis. Its equity market is down more than 90% since the peak in 2007.
“Given how volatile the country’s markets have been since 2007, and given that its debt situation and subsequent austerity measures still have not been resolved, this exchange traded fund is by no means a buy-and-hold vehicle,” says Morningstar analyst Robert Goldsborough in a report on GREK, the Greece ETF.
The fund was launched in December 2011.
“Greek voters, after an inconclusive first election on May 6, are preparing to return to the polls with the possibility that a coalition of radical left-wing parties, Syriza, could end up as the largest party in the next Greek government,” said JP Morgan’s Kelly in a weekly outlook.
“Syriza is demanding a complete renegotiation of agreements with the European Union and, if Europe refuses to cooperate, this could set up a chain of events leading to a complete default on Greece’s massive debt and a Greek exit from the Euro,” he wrote. “While five opinion polls released over the weekend show the New Democracy party, having trailed over the past few weeks, is now leading Syriza by an average of 2.5 percentage points, the race is far too close to call at this stage.”
In June, the market could remain choppy as investors speculate on the outcome of the election.
“For Greece, default and Euro exit would be a catastrophe,” Kelly said. “For Europe it would be a disaster and the uncertainty on this issue is helping weaken an already faltering European economy.”
Global X FTSE Greece 20 ETF
The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.