Inside The Greece ETF's Epic 2019 Rally

The Global X MSCI Greece ETF GREK, the only New York-listed exchange traded fund focusing on Greek equities, is up nearly 37% year to date, a performance that easily thumps the returns offered by emerging markets and Eurozone benchmarks.

What Happened

The fastest economic growth in more than a decade, the recent issue of sovereign bonds with surprisingly low yields and some ebbing in political volatility are among the factors boosting Greek stocks this year.

“At the end of Q2, the markets were up 40.4% making it the best performing emerging market year to date (YTD),” said Global X in a recent research note. “Growth forecasts project annualized 2019 GDP at 2.4%, versus the 1.3% forecasted for broader Europe.”

Improving economic growth is vital to GREK's fortunes because the fund is highly levered to cyclical sectors. The financial services, energy and consumer discretionary sectors combine for about 60% of the fund's roster.

Why It's Important

Financial services account for about 22% of GREK's weight and as such, have been primary drivers of the fund's stellar 2019 performance.

“Greece’s strong equity market returns came amid the ongoing push to clean up bad debt from bank balance sheets,” said Global X. “As a result, financials lead the way as the biggest positive contributor to performance during Q1 and Q2.”

Rebounding consumer confidence is playing an important role, too, which is relevant to GREK because the fund devotes almost 19% to the two consumer sectors.

“Further powering returns was a recovery in consumer confidence, which started the year off at almost pre-crisis levels, and has risen for four consecutive months through June,” said Global X.

What's Next

What's next could be lower bond yields and higher equity returns. In January, yields on Greek 10-year bonds flirted with 4.5%. As recently as late June, that yield was approaching 2%.

“The falling yields experienced the sharpest drop, however, after the ruling Syriza party was defeated in May by the New Democracy party in the European parliamentary elections,” according to Global X. “The May elections proved portentous for the pro-market New Democracy party, which won the recent July elections and put the party into office at an opportune moment to guide Greece’s bull market.”

The ETF closed Monday's session at $9.43.

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