Greece ETF: An Emerging Markets Star

Last Friday, the Global X FTSE Greece 20 ETF GREK surged over five percent on volume that was nearly six times the daily average. Much of that move can be attributed to the 19.5 percent gain by National Bank of Greece NBG, the largest of GREK's 22 holdings with an allocation of 12.8 percent. Although GREK has a reputation for being sensitive to regional shocks, Friday's action in the $52.3 million ETF was not a one-off affair. GREK has surged 39 percent in the past month, a performance that is roughly three-and-a-half times better than what the iShares MSCI Italy Index Fund EWI delivered over the same time. Whether it is hot money remains to be seen, but what is clear is that GREK is nearly twice the size by assets today as it was less than three months. As of Friday, the ETF had $52.3 million in assets under management, according to Global X data. On March 1, that number was just over $28 million. That was right after index provider Russell Investments demoted Greece to emerging markets status. While other index providers have not yet followed Russell's lead in demoting Greece, such a move cannot be ruled out. Last year, MSCI MSCI said Greece was on review for a possible loss of its developed market status. Catalysts Greece's reputation as a volatile equity market is well deserved and the country's sensitivity to Eurozone-related drama is well known. However, catalysts have emerged that buoy a bull case for Greek equities. For example, earlier this month, Fitch Ratings upgraded Greece's credit rating to B- from CCC. That is still a non-investment grade rating, but the improving outlook for Greece has helped push bond yields lower. In March 2012, the yield spread between Greek sovereigns and German bunds was over 3,500 basis points. That number recently declined to a spread of less than 850 basis points. In early May, Morgan Stanley said Greek government bonds were among its top fixed income trades for 2013, the Wall Street Journal reported. More good news: Market participants now view the chances of Greece departing the euro as slim and, if one can believe it, Greece is poised to deliver GDP growth in 2013 and 2014. Profit-taking is one near-term hurdle investors should be aware of with GREK. The banking index on the Athens Stock Exchange jumped almost 70 percent last week alone and GREK allocates over 15 percent of its weight to banking shares. Then again, should that profit-taking in the ETF occur, it could represent a buying opportunity. A Double...And More? In less than a year, the Athens Stock Exchange has more than doubled to over 1,000 from the 500, bringing GREK along for the ride. The ETF traded around $11 last August and is found trading above $21 on Monday. A move like that may imply the easy money has already been made, but as Value Digger notes, it should be remembered that the Athen Stock Exchange traded around 6,000 in 1999. On the back of falling bond yields, a shrinking current account deficit and increased investment in the country by foreign multinationals, investors that can stomach the volatility may be getting in on the early innings of a multi-year recovery in Greek stocks by considering GREK, even at current levels. For more on ETFs, click here.