Debt Restructuring Puts Greece ETF In Focus

Greece is hitting headlines lately with its debt-related talks. To the nation’s relief, its creditors have agreed on an extensive deal to provide €10.3 billion (11.5 billion U.S. dollar) in bailout funds. The International Monetary Fund (IMF) has even proposed an “unconditional” debt relief for Greece ‘as far out as the year 2040’ (read: Greek Woes to Impact Brexit? ETFs in Focus).

In the latest meeting in Brussels, creditors agreed that Greece seemed to have left no stone unturned to qualify for the next loan. Once the pending actions over pensions and privatization are taken care of, the bailout fund will be released, of which €7.5 billion will be disbursed in June. These receipts would be sufficient for the 2.3 billion-euro payout slated for July to the European Central Bank.

Also, the creditors decided to allay Greece’s 321 billion euro debt burden by extending loan maturities, reducing interest rates and delaying payments. As of now, Eurozone ministers have decided on ‘short-term tweaks’ to Greece’s debts, to even out its obligations. Over the medium term, Greece may also get nearly €1.9 billion in profits held by the European Central Bank to pay off its loans obligations by mid-2018.

How Bad is the Greece Debt Situation?

Per Bloomberg, Greece’s government obligations were 106% of its GDP in the third quarter of 2008. But now it has shot up to 177%. The Euro area wants Greece to log gross financing needs under 15% of its GDP in the medium term and under 20% after that. The Euro group also wants a medium-term primary budget surplus of 3.5% of GDP from Greece.

Market Impact

Thanks to the debt restructuring news, the 10-year Greek government bond yields headed to a six-month low of 7.33% on May 24, 2016. Short-term Greek bond yields are also down over 100 basis points in the first two days of this week. Here it is worth remembering that bond yields had surged to the all-time high of 48.60% in March 2012.

ETFs to Watch

Greece, which suffered a six-year of recession, is hoping to ‘return to growth this year’, as per prime minister Alexi Tsipras. Forget about likely growth, the sheer prospect of substantial debt relief led the pure play Greece ETF, Global X MSCI Greece ETF (GREK) to add about 4% gains on over four times higher volumes on May 23, 2016. Though the fund shed about 0.9% the day next, probably to reflect profit booking, it added about 0.6% after hours.

This invariably puts GREK in focus for the coming days. In fact, the situation might take a positive turn if Athens does not default on any debt and proceeds smoothly with its bailout program (read: Surprise ETF Winners & Losers Post ECB Easing).

GREK in Focus

The ETF tracks the MSCI All Greece Select 25/50 Index. The product holds 32 securities in the basket and is heavily concentrated on the top two holdings that make up for a combined 28% of assets.

The ETF has around $271.5 million in its asset base and sees a moderate trading volume of more than 400,000. The annual fund operating expense of the fund is 0.63%.

GREK has a Zacks Rank #3 (Hold) with a High risk outlook. The fund gained about 9.5% in the last one month (as of May 24, 2016), which was the highest in the European equities ETFs space (see all European Equity ETFs here).

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GLBL-X/F GREC20 (GREK): ETF Research Reports

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