Like other single-country exchange traded funds tracking developing economies, the Global X MSCI Greece ETF (NYSEArca: GREK), the only exchange traded fund dedicated to Greek stocks, is slumping. Year-to-date, GREK is off more than 17%.
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. Greece is classified as an emerging market.
Greece recently exited its bailout program, but the country still has plenty of work to do to get its economy back on solid footing. There are signs of progress.
“Greece’s real GDP increased 1.4% in 2017 and, according to estimates, could accelerate to roughly 2% in 2018 and 2019,” according to Global X research. “Such progress earned praise from the international community, including the Organisation for Economic Co-operation and Development (OECD), which recently lauded the pace of reforms and fiscal consolidation.1 In addition, credit rating agencies Moody’s, S&P, Fitch, and DBRS have upgraded Greece’s sovereign credit rating.”
More GREK Details
The $315.18 million GREK, which is nearly seven years old, targets the MSCI All Greece Select 25/50 Index and holds 35 stocks. GREK is top heavy at the sector level with financial services and energy names combining for more than half the fund’s weight.
While some Greek economic data points are encouraging, the economy there is still contending with high unemployment.
“While, unemployment is down to 19.5% from a high of 26%, it still remains a significant issue. For those fortunate to have work, their wages have fallen 20% as job creation has skewed heavily toward the part-time, lower-wage variety,” according to Global X. “As a result, poverty is rising and a growing concern. Also of significant concern is the drain of talented professionals who are leaving Greece for greener pastures in other European Union countries.”
Related – Greece ETF: Hoping for a Clean Break
With financial services stocks representing nearly 31% of GREK’s weight, the health of that sector is integral to the ETF’s performance. However, Greek banks still need some help.
“With exposure as of June 2018 to approximately $88.6 billion of nonperforming loans (NPLs) Greek banks remain weak. This high amount of NPLs locks up lending because banks must keep capital on their balance sheets to protect against defaults. Less lending, in turn, negatively affects economic growth,” said Global X.
For more information on the Greek markets, visit our Greece category.