Emerging Markets: Greek Fatigue

Emerging Markets: Greek Fatigue

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By Peter Kohli

It was mildly amusing, at first, to follow the goings on in Greece, which at times reminded me of the 1959 movie “The Mouse That Roared” in which Peter Sellers played all the major roles. For those of you who don’t know or have forgotten, the movie is about a country the size of a postage stamp, Grand Fenwick, which decides to declare war on the United States in order to direct attention away from its crumbling society.

 The ultimate aim is to surrender to the United States and take advantage of their generosity to rebuild the economy. While the movie was meant to be funny — and that it certainly achieved, what happened in Greece was not meant to be funny, but it ended up being that way.

Now history has run its course and every non-headline coming out of that Hellenic nation leaves me, as an investor, scratching my head and frankly just plain bored. Syriza is now in favor of what they were once against. Wait a minute, haven’t I heard that before? So who really cares if Greece falls off a cliff politically and economically? I don’t, not anymore.

I heard recently that they did not originally qualify for the Euro under the Maastricht treaty and an exemption was made for them. If that’s true, then the Eurozone got what they deserve, a lifetime headache. To be quite honest, I was expecting Greek voters to swallow their pride and kick out the socialists who turned out to be charlatans, but no such luck.

Interesting though and maybe a little frightening, is that Golden Dawn, the ultra-right wing Neo-Nazi party, increased their percentage in the election. In fact, on some of the islands where the migrant crisis is being felt the most, they doubled their vote. On the island of Kos, what a beautiful place to visit, they doubled their total vote, ending up securing third place in the final Greek tally. That in itself is enough to give this investor cause for concern.

Now let’s turn to the equity markets. As you might imagine, the benchmark index of the Athens Stock Exchange (ASE) has been hammered and is down over 39% in a one year period. The most popular ETF available in the US, Global X FTSE Greece 20 ETF is also running negative, down nearly 50% in a one year period.

So, can brave investors make money in this market? The short answer is yes, but they need to be careful. One approach is to short the market, but what instruments can best achieve this? Here we have some options. The most obvious one to me is to short Greek stocks, and in particular banks. The National Bank of Greece is down over 78% over the last year for instance, and then there are funds such as ProShares Short Euro up 7% YTD, and ProShares UltraShort Euro which has a 13% return YTD. In the last two cases however, these investments should not be considered long term.

In the end, hopefully Greece will fall off the front page of the newspapers and again be confined to the classifieds. “Wanted: a government that believes in capitalism.”

 

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