Tag Archives: greek

Prime Minister Tsipras Resigned, The Greek Parody Is Set To Continue

Summary Prime minister Tsipras resigned, new elections are expected in September. A new anti-austerity Popular Unity party to be created. GREK investors should expect increased share price volatility and potentially new lows. The Greek parody seemed to come to an end finally. But the recent developments show that another act has only begun. Although opponents of the austerity measures were victorious in the referendum that took place in early July, the Greek government agreed to adopt reforms and austerity measures demanded by the creditors, in order to avoid the looming state bankruptcy. On July 15, the Greek parliament approved bailout measures with 229 out of the total of 300 votes. The measures included increase of value added tax, limits on public spending and reform of the pension system. As a result, €86 billion should be provided to Greece over the next three years. The reaction of the Global X FTSE Greece 20 ETF (NYSEARCA: GREK ) was positive at first, but the share price decline resumed very quickly due to the uncertainty as to whether the new financial package for Greece will be approved by the creditors. There are 19 countries in the eurozone and in 8 of them (Austria, Germany, Greece, Estonia, Finland, France, Latvia, Slovakia) the parliament had to decide whether the country will vote for or against the bailout package. Things started to look brighter in August, as it began to be clear that the bailout package will be approved. On August 18, Fitch upgraded the Greek credit rating to CCC, on August 19, the German parliament approved the bailout package. Germany was the last country to approve the package. It seemed like the Greek problem has been resolved (swept under the carpet) for now. But another of the countless surprises was prepared by the Greek government on August 20, when prime minister Tsipras resigned . According to Reuters, the new elections should take place on September 20. Tsipras wants to support his position and get rid of the opposition inside his own party. According to BBC , 25 members of Syriza plan to create a new Popular Unity party, led by the former energy minister Panagiotis Lafazanis. The situation may get really complicated, as the July referendum showed that a majority of Greeks opposes the austerity measures. If the new anti-austerity party gains too much power, all the bailout process may be endangered. After Tsipras won elections in January 2015, he said that his government doesn’t feel obliged to fulfill commitments of former Greek governments. If the new government behaves the same way, the Greek parody may start over again. Source: own calculations, using data of YahooFinance It is highly probable that the relatively calm couple of weeks have ended for GREK. Volatility measured by the 10-day moving coefficient of variation (chart above) was relatively low over the last couple of weeks, as it ranged from 1% to 4%. But GREK investors should prepare for another turbulent period ahead. GREK’s share price development will be driven mainly by the pre-election polls. The most vulnerable part of GREK’s portfolio continues to be shares of Greek banks, however their cumulative weight declined to approximately 12%. The banks are in a complicated situation, as the eurozone finance ministers declared that bail-in of depositors will be explicitly excluded. It means that the Cypriot scenario shouldn’t repeat in Greece. But the bondholders are endangered. This decision should prevent bank runs and increase the trust of depositors in Greek banks. On the other hand, Greek banks will have even bigger problems to raise money via bond markets. Conclusion The situation in Greece is getting more complicated once again. If the anti-austerity parties win the coming elections, it is hard to predict what may happen. GREK investors should be prepared for another weeks of increased share price volatility and it is quite possible that new lows will be created. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

An Analysis Of A Long MSCI U.K./Short S&P 500 ETF Pairs Trade

While U.K. markets have been trading downwards in the past month over Greece concerns, I see this as temporary. However, I still maintain that the S&P 500 index is overvalued. I see potential value in a long EWU/short SDS ETF pairs trading strategy. In a previous article written on May 22, I argued that a significant pairs trading opportunity exists through taking a long position on the FTSE 100 and a short position on the S&P 500. The purpose of this article is to both review the performance of this strategy in light of developments in June, and further discuss the strategy in the context of specific ETF performance. On a one-month basis, the iShares MSCI United Kingdom Index ETF (NYSEARCA: EWU ), which approximates the returns on the MSCI United Kingdom Index returned -2.34 percent, which has been less severe than the -4.24 percent return on the FTSE 100 over the same period. On the other hand, the ProShares UltraShort S&P 500 ETF (NYSEARCA: SDS ) has returned 1.05 percent this month. On balance, this would have been a losing pairs trade based on lower than expected stock market performance in the United Kingdom. However, is there a prospect of reversal in this regard? In my opinion, economic fundamentals in the United Kingdom are solid and returns are being driven lower in tandem with European shares as a result of uncertainty in Greece, which has seen the FTSE 100 hit a three-month low. However, I had previously expressed my optimism that an upturn in property markets in the U.K. would lead the index higher over time, and while U.K. markets as a whole are lower, construction firms have bucked the trend with firms such as Berkeley, Persimmon and Barratt Developments all seeing gains this month. In this context, I expect that while U.K. markets may see volatility in the short-term as a result of the Greek crisis, long-run growth will ultimately push the index higher. On the other hand, we have seen that the S&P 500 has been falling as expected this month by -0.75 percent and the inverse ETF returning 1.05 percent accordingly. I still maintain that US stocks have little room left to run in terms of valuation, and this is evidenced not only by falling returns but also concerns of potential overvaluation among large consumer discretionary stocks. For instance, an article from ValueWalk makes the point that while the segment had expected a 16.9 percent growth rate at the beginning of the year, it has seen the fourth-biggest decline in earnings growth expectations. Moreover, I had also stated in the previous article that while the S&P 500 had trended upward until recently, US equity inflows had been falling which had raised concerns of a pullback which we now appear to be seeing. To conclude, I expect that U.K. stock markets may undergo some short-term volatility as a result of the Greek crisis. However, I still see potential for growth once the initial contagion subsides, and maintain my view on a long MSCI U.K./short S&P 500 trade. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

The Greek Share Market: Poised For Significant Gains, After The Situation Calms Down

Summary The Global X FTSE Greece 20 ETF has declined by more than 50% since the beginning of 2014. The Greek government seems to understand the negative impacts of the potential grexit and they will have to fulfill the conditions of their Eurozone partners in the end. The Greek share market will grow significantly after the current problems are resolved. The growth will be strengthened by the European QE. The Greek share market represented by the Global X FTSE Greece 20 ETF (NYSEARCA: GREK ) has declined by more than 50% since the beginning of 2014. A major part of the decline happened in the second half of 2014 and in 2015 and it was caused by the renewed concerns about the potential grexit. The GREK share price behaved in line with the major markets (chart below) from the beginning. The problems started during the summer months and culminated in December and January when a political crisis led to early elections. The elections were won by Syriza, a party with a strong and loud anti-austerity rhetoric. Their way to power was paved by refusing the austerity measures and by a lot of unrealistic promises to the electorate. The new Greek government, led by prime minister Alexis Tsipras, initially demanded another debt writedown as well as a renegotiation of terms of the bailout program. After four weeks full of furious negotiations and a free fall of the Greek financial markets, the Greek government promised reforms, promised that it will not introduce any unilateral measures that would negatively impact the fiscal targets set by the “troika” and it declared its intention to fulfill its financial obligations. As a result, the bailout program should be extended by another four months. But a new list of reforms must be accepted by the Eurozone finance ministers before another financial aid disbursement. The proposed reforms were rejected by the Eurozone partners on March 9 and there is a threat of a Greek default as soon as this month. Although the initial reaction of the Greek representatives was highly negative, ranging from demands for German war reparations to threats of flooding Europe with immigrants. But on Friday, Tsipras reassured that Greece will hold its word given in February. It is more evidence that the Greek government realizes the painful consequences of the potential grexit. All the screaming and kicking around is just theatre for the Greek electorate. The grexit and the Greek default would lead to an immediate decline of the purchasing power of Greek citizens. The unemployment rate would grow above the current 25% level and the bank sector would be on the brink of a total collapse. Any chances of the current Greek government for a future re-election would drop to values close to zero. Yes, the grexit could be positive for Greece from a long term point of view. But the long term positives are not a sure thing. The only sure thing is huge pain in the short term. The most probable scenario is that the Greek government will keep on screaming and kicking, so that it can show their voters that they want to keep their promises and they fight for Greece, but they will surrender in the end in order to avoid the grexit and the responsibility for it. The Eurozone partners may make some minor compromises in order to give Syriza an opportunity to show their voters some “success”. But any major reliefs are highly improbable. The economy of the Eurozone is stronger than in 2012 and what is more important, the European financial sector is much better prepared for a potential grexit. The grexit is a much bigger threat for Greece than for the Eurozone today. As I wrote above, I expect that the situation will calm down and Greece will stay in the Eurozone. This is why I see a huge investment opportunity in Greek shares. As the chart below shows, GREK increased rapidly after its bottom in May 2012. It grew from $8.85 on June 1, 2012, to $18.80 on October 22, 2012. That’s more than 100% in less than five months. Yes, the historical results are no guarantee of future results, but history tends to repeat itself. Moreover, there is another powerful card in play this time. The European QE. The QEs led to inflation of a share market bubble in the USA. The same process has started in Europe now. And a lot of investors will direct their money into cheap Greek shares, after the situation around Greece calms down a little. I admit, I have no idea where the bottom will be and when it will come. It is possible that GREK will retest the 2012 lows in the coming weeks and it is possible that the bottom is somewhere near the current price level. Everything will depend on the progress of the Eurozone – Greece negotiations. The longer the negotiations last, the more the market’s nervousness will grow and the lower GREK will fall. The best solution is to wait until any kind of solution is reached and initiate a position in GREK. It may mean buying shares 10% or 20% above the bottom, but there will likely still be a huge upside remaining. Conclusion Although the Greek government is very loud and very aggressive, Tsipras seems to realize the negative impacts of the grexit on Greece and the future political careers of him and his party. I believe that Greece will surrender and fulfill the demands of its partners. In this case we can expect a huge increase of the GREK share price. It increased by more than 100% in less than five months, back in 2012. Similar gains are possible this time, given the supporting effects of the European QE. The best way to play this situation is to wait until the current complications between Greece and its Eurozone partners are resolved and initiate a long position. It may mean losing some initial gains of the bull run, but there should be still more than enough profits left. Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.