After Monday’s drubbing that saw it lose 20%, the Global X FTSE Greece 20 ETF (NYSEArca: GREK) was attempting to notch a modest bounce-back rally earlier Tuesday, flirting with gains of nearly 5%.
But at this writing, the lone Greece has seen the bulk of those gains evaporate and is close to its intraday lows after Standard & Poor’s Ratings Services lowered its long- and short-term counterparty credit ratings on four major Greek banks.
The ratings agency pared its ratings on “Alpha Bank A.E., Eurobank Ergasias S.A., National Bank of Greece S.A. (NYSE: NBG), and Piraeus Bank S.A. to ‘SD’ (selective default) from ‘CCC/C’. We have also lowered our issue ratings on the banks’ senior unsecured debt to ‘CCC-‘ from ‘CCC’. We have affirmed our ‘C’ subordinated debt ratings on the four institutions,” according to a statement.
As of the end of the first quarter, GREK had an allocation to the financial services sector of nearly 25%, roughly 730 basis points above consumer discretionary, the ETF’s second-largest sector weight, according to Global X data.
At the start of U.S. trading Tuesday, National Bank of Greece, Alpha Bank, Eurobank Ergasias and Piraeus Bank were GREK’s third-, fourth-, fifth- and seventh-largest holdings, respectively, combining for almost 23% of the ETF’s weight.
Greece’s ASE Index would need to rise more than six-fold to reclaim its 2007 highs, according to Bloomberg. GREK was not around back then, but the ETF would need to jump more than two and a half times to reclaim its all-time of $24.93 set in March 2014. [Greek Drama Sends ETF Tumbling]
“The downgrades to ‘SD’ follow the measures introduced by the Greek government on Monday June 29. Specifically, these include limits to deposit withdrawals, the closure of bank branches for a full working week, and the prohibition of money transfers out of Greece unless authorized by the Greek Ministry of Finance. The rating actions reflect our opinion that private individuals’ lack of access to their deposits on a timely and in-full basis, and the constraints to their ability to transfer funds, constitute a selective default under our criteria. Our downgrade of all outstanding senior unsecured notes to ‘CCC-‘ reflects our opinion that it is now inevitable that Greek banks will default within six months in the absence of support from the EU authorities; we do not anticipate such support will be forthcoming,” said S&P.
Greece’s implementation of capital controls, including a 60-euro withdrawal limit from the country’s banks, are catching the eyes of other entities as well. For example, index provider MSCI (NYSE: MSCI) said Monday it is considering expelling Greece from the MSCI Emerging Markets Index and applying the ominous standalone market classification on the country. [MSCI Could Demote Greece]
The last country MSCI demoted to standalone status was Venezuela in May 2006. If Greece earns that dubious market classification, it would join the likes of Botswana, Ghana, Jamaica and Zimbabwe in standalone territory, according to MSCI.
Global X FTSE Greece 20 ETF