Greece... recent memory brings only thoughts of severe depression, massive fiscal fraud and spiraling debt loads. Throw in an IMF bailout that nearly failed (twice) and a political system keen on electing neo-Nazis and the equation does not necessarily lead to a rosy economic outcome.
Forget everything that has happened in the past in Greece and look at what the new government has done in less than a year since taking office. Deposits are flowing back to Greece, bond yields are falling, and the economy may be bottoming out. In no way is it arguable that Greece will grow five percent next year; however, investing is about finding undervalued assets that the market has for some reason priced lower and finding catalysts for their appreciation. A bottom in the economy after a 6-year depression is one heck of a catalyst.
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Look at some of the recent data. Greek bank deposits rose by almost five billion euros, or almost 3.2 percent, in December and January to just over 155 billion euros. This is still well below the peak level of over 380 billion euros seen in 2008, but it could be the mark of a bottom.
Greek 10-year bond yields, a good benchmark of the market's view of the solvency of Greece, paint an even rosier picture. 10-year benchmark borrowing costs are a third of what they were in May at 10.64 percent and have hovered just above the 10-percent level since the beginning of the new year.
2-year borrowing costs, a good measure of the market's view of Greece's liquidity position, have fallen over the same period but still remain at a whopping 225 percent. Effectively, Greece is still viewed as illiquid by markets (meaning that it cannot borrow anymore money right now), but it is not viewed as insolvent (it should be able to repay its outstanding debts).
GDP data released for the fourth quarter on Monday, March 11 also paints an improving picture of the Greek economy. Remember, Greece is in an outright depression and numbers will still reflect that, however the rate of change of the data and the direction of this change are what are important. Greece's economy contracted 5.7 percent in the fourth quarter compared to the same period a year ago, better than the 6.0 percent rate of contraction seen a year ago and trumping economist estimates of a 6.0 percent annualized contraction.
The lessening of the rate of contraction in Greece is the best GDP data since the third quarter of 2011, or seven quarters, and second-best since the onset of Greece's debt crisis in 2010. This could be another fake out or it could be the real deal.
One other factor to weigh in a Greek investment thesis would have to be the bailout, specifically the government's ability or reticence to adhere to the bailout conditions. Under the previous government of Prime Minister George Papendreou, Greece tended to miss targets creating tensions with its new creditors under the program. This led to the massive stand-offs between the two parties in negotiating new loan agreements.
Under the new government of Antonis Samaras, Greece has actually met or beaten bailout targets and has successfully cooled tensions with its creditors. Should Greece remain on track with its program, this would not only be a boost for investor confidence in Greece but it could also signal a new-found political stability in Greece for which investors have clamored for years. The parliamentary coalition of centrist governments from the right and left, led by Samaras and former Finance Minister Evangelos Venizelos, that are both pro-growth have successfully kept the radical Syriza from voicing its anti-EU opinions in votes.
All in all, Greece may be looking more attractive than at any point in the past dozen months or so. However, there are still many risks to any investment in a nation still trapped in a depression that has run longer than a half-decade that is still on the life-support systems of its Troika of creditors. Nevertheless, any improvement is a change in the direction of the data, a change (hopefully) for the better.
Investors looking to invest in Greece from the U.S. without access to the Greek stock market have few options to invest, but still can invest in diversified portfolios. With an average daily volume of just under 40,000 shares over the past three months, investors could look to the rather illiquid Global X Funds FTSE Greece 20 ETF (NYSE:GREK) to create a portfolio. This portfolio is overweight to economically sensitive sectors such as financials and consumer stocks which could do well in an economic rebound.
There are also three Greek companies with ADR's traded in the U.S. Coca-Cola Hellenic Bottling Co. (NYSE:CCH) is the Greek bottler for Coca-Cola (NYSE:KO). The stock was trading a bit more than 4 percent off of its 52-week high and just bounced off of support at its 20-day moving average as of Friday, March 8's close.
Tsakos Energy Navigation (NYSE:TNP) also has shares traded in New York. However, the Greek oil transportation company has had to deal with the double blow of a slowing domestic economy and declining global shipping rates hurting revenue.
Lastly, the National Bank of Greece (NYSE:NBG) is traded in New York and may be the most popular of all of the Greek ADR's as it is a pure play on the financial health of the Greek economy. Along wit the Coca-Cola Hellenic Bottling Co., it is of the largest holdings of the GREK ETF. The bank could be a great way to invest in a recovery in the financial health of Greece, a fall in unemployment, and a rise (or at least a bottom) in consumer credit.
All in all, investing in Greece is extremely risky and should be done with extreme care. However, recently, the new risks have been dwarfed by the new positives in the country and this in itself is a positive. No longer are investors chatting about another haircut, the next bailout, or Greece leaving the euro. Greece is now simply an afterthought of investors when they think about the European debt crisis. It is for these reasons why sentiment may slowly be ebbing from negative to positive... but just about as slow as molasses.
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