Bargain investors may see the Greek market as a cheap play after the recent plunge. However, the Greece exchange traded fund may take a while before fully recovering.
The Global X FTSE Greece 20 ETF (NYSEArca: GREK) has gained 10.7% since the late June low, but it has still plunged 26.7% so far this year and 54.9% over the past year.
Investors betting on a rebound in Greece’s market and economy will likely twiddle their thumbs for a while. The International Monetary Fund argues that Greece will need a 30-year grace period on servicing all its European debt before the country pulls itself out its current quagmire, Reuters reports.
“We have made it clear … we need a concrete and ambitious solution to the debt problem,” a senior IMF official told Reuters. “I don’t think this is a gimmick or kicking the can down the road … If you were to give them 30 years grace you are allowing them in the meantime to bring down debt by … getting some growth back.”
The IMF projects that Greek debt will hit 200% of GDP in two years, which could “only be made sustainable through debt relief measures that go far beyond what Europe has been willing to consider so far.”
Meanwhile, Greece is set to enact a slew of painful austerity measures that were more stringent than those rejected in a referendum earlier this month. [Even With a Deal in Place, Greece ETF Tumbles]
To receive a third bailout worth €86 billion, or $95 billion, over three years, Greece will have to enact measures including higher value-added taxes on a range of products and services, an end to VAT discounts on Greek islands, a higher corporate tax rate for small businesses, a higher luxury tax on some goods, an end to early retirement and an increase in the retirement age, reports BBC.
The Greek parliament will vote on the measures Wednesday. The government needs to have a majority vote, or 151 of 300, to pass the resolution. Prime Minister Alexis Tsipras will probably have to cross over to pro-European opposition parties to garner the additional votes, with a majority of his own party expected to vote against the measure.
The Greek economy has already contracted 25% in the past five-years as the government tackled with austerity measures designed to diminish the growing public debt.
Greek banks have been shut since June 29 and remain closed until the bailout deal is ratified, which could take another month. With the underlying market closed, the Greece ETF will continue to exhibit large premiums or discounts to its net asset value – GREK is currently trading at a 6.8% discount to NAV. [While Athens Exchange is Closed, the Greece ETF Show Goes On]
Global X FTSE Greece 20 ETF
For more information on Greece, visit our Greece category.
Max Chen contributed to this article.