Saturday, May 17, 2014

Another crisis in Greece? (Part 2)

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.”