In
the previous blog posting we looked at the recent weakness in the Greek ETF
(GREK) and speculated on its possible meaning for both the Greek and global
economic outlooks. A subscriber from
Greece was kind enough to relay some additional insights:
“You made a reference to the GREK ETF in
last night’s MSR. Since I am a Greek and
actually leave in Athens-Greece, let me give a couple of extra bullet points as
to what has happened in recent weeks that may have affected the local equity
market:
“1.
Banking stocks have been under pressure (especially National Bank of Greece -
also trades in NY under the symbol NBG) due to a second round of bank recapitalization.
Banks needed extra capital after their
loss provisions and % of NPLs (non-performing loans) after a 6th CONSECUTIVE
year of recession. Recession officially started in mid/late-2008!!! The 1st round of bank capital increases was
last May. Since March the major banks have raised via equity (dilution?)
+ bonds some 8.5 billionn euros. NBG’s stock has been down 50% since early
2014. In a very thin market when capital goes to BUY these recapitalized banks
needs to sell other stocks in order to participate. Same as in IPOs in the US.
“2.
Greece made its “appearance”/come back again to foreign capital markets in
April 2014 after 4 years of absence. Its 10-year bond hit a 5.85% (yield
-to-maturity) low in early May, after trading as low as 34-35% in 2012! It went
back up to 6.85% or something last week. That capital gains tax over foreign buyers of
bonds will be repelled BEFORE even is instituted. Nervousness, however, may
have affected stocks/bonds altogether.
“3.
Greek holds tomorrow (May 18th) municipal elections and next Sunday (May 25th)
there is a pan-European parliamentary election. Greece has a coalition government and its
majority is by a very thin margin. Parliament has 300 seats. The coalition has
152 of these 300. Slim majority. So if the opposition parties in the upcoming
elections gain in popularity and get more votes they may start calling for
general elections. Uncertainty?
“4.
Finally, there is some rebalancing coming up in the MSCI Emerging Markets
indices that affect a few stocks from the Athens Stock Exchange. Since November 26th 2013 Greece is back in the
EM MSCI index. From June 2001 until last November it was a “developed” market.
“All
the above plus some technical damage on the charts may explain why the recent
selling.”
