The Global X MSCI Greece ETF (NYSEArca: GREK) is one of this year’s best-performing single-country exchange traded funds is with a gain of 32.5%. Improving economic fundamentals in Greece underscore why the country’s equity market is performing so well.
Last year, Greece registered a primary budget surplus of €7.4 billion in the year ended November, or nearly €4 billion over its target due to lower spending and higher revenues. The IMF has pressured Europe to cut Greece’s budget target to a primary surplus of 1.5% of gross domestic product instead of its current goal of 3.5%.
“Fitch Ratings has upgraded Greece’s Long-Term Foreign-Currency Issuer Default Ratings (IDR) to ‘B-‘ from ‘CCC’. The Outlooks are Positive,” said Fitch Ratings in a recent note.
The Eurozone macroeconomic environment has steadily improved, with a significant uptick in manufacturing and services PMIs over the end of 2016. Eurozone growth may continue to pick up speed ahead after the European Central Bank revealed increased loan demand and easing of terms and conditions on new loans to help stimulate the economy.
“Fitch believes that general government debt sustainability will steadily improve, underpinned by on-going compliance with the terms of the European Stability Mechanism (ESM) programme, and reduced political risk, sustained GDP growth and additional fiscal measures legislated to take effect through 2020. The successful completion of the second review of Greece’s ESM programme reduces risks that the economic recovery will be undermined by a hit to confidence or by the government building up arrears with the private sector,” according to Fitch.
Related: Greece ETF Goes Big in 2017, Up 26.4% YTD
Eurozone and emerging markets stocks are attractively valued relative to the U.S. and those discounts are evident with some of GREK’s holdings. That theme has been prompting investors to revisit the lone ETF trading in the U.S. that is dedicated to Greek stocks. Importantly, Greece’s finances are improving.
“Public finances are improving. In 2016 Greece recorded a primary surplus of 3.9% of GDP, well above the ESM programme target of 0.5%, owing to higher than budgeted revenues and expenditure restraint,” said Fitch. “We expect the government to record an average primary surplus of 2.8% of GDP over 2017-19. Assuming nominal GDP growth of 3.4%, general government gross debt is forecast to fall to 169.5% of GDP in 2019. The government has already legislated fiscal measures that are projected to yield 3% of GDP through 2018, of which just above two-thirds will come from pension and income tax reform. Full implementation may face political constraints, but there is a contingent fiscal mechanism to retrospectively trigger further measures if a fiscal target is missed.”
Year-to-date, investors have added $68.6 million to GREK.
For more information on the Greek markets, visit our Greece category.