Greece ETF slumps as Athens Stock Exchange remains closed

Jun 30th, 2015 | By | Category: Equities

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Greece has officially defaulted on debt repayments becoming the first Western country to fail to repay their debt on time to the International Monetary Fund. The ongoing stalemate between the Greek government and their creditors has led to increased volatility within the financial system in Greece, the imposition of capital controls and the closure of the Athens Stock Exchange. The terms of a potential resolution hang in the balance, awaiting a national referendum scheduled for Sunday 5th July.

Greece-linked ETF devalues amid higher trading as Athens stock market remains closed

The Global X Funds Greece 20 ETF slumped by 19% on Monday as the Greek government officially defaulted.

It is not surprising, therefore, that there has been increased trading volume in ETFs linked to Greece, as traders speculate on the future of the Hellenic economy.

The only pure-play ETF focused on Greece is the Global X FTSE Greece 20 ETF (GREK). The fund tracks the FTSE-ATHEX Custom Capped Index, an index measuring the performance of the 20 largest companies by market-cap on the Athens Stock Exchange.

Traded volume in this ETF has recently climbed to over three million shares per day, significantly above the three-month average of around one million shares per day. Volatility has also spiked, with the value of the ETF slipping 19% on Monday as investors tried to price in the new probability of a total default and the resulting consequences.

The suspension of trading in the underlying constituents of the ETF is potentially leading to a position where the traded value of the ETF deviates materially from its Net Asset Value (NAV), a rare situation in these instruments. A similar situation occurred during the Arab Spring of 2011 when the national exchange of Egypt was shut for two months. Investors still played the market by trading the shares of the Market Vectors Egypt Index ETF (EGPT), bidding up the price on hopes of a more open economy following the revolution, only to see the price plunge when the exchange re-opened.

That said, investors are not completely void of information as to the price of the underlying securities. Coca-Cola HBC, the fund’s largest holding at 20%, has shares listed on the London exchange; they fell by 2.6% on Monday. The second largest holding in the fund at 10.8% is the National Bank of Greece, which recently saw the value of their American Depository Receipts fall by 28% in New York.

The main sectors that the fund is currently exposed to are financials (24.8%), a sector which is likely to continue as the biggest loser in this crisis, followed by consumer discretionary (17.5%) and consumer staples (16.6%). The fund trades on the NYSE Arca and the expense ratio of the fund is 0.65%.

Greece’s sovereign debt continues to sour, with investors pushing up the 10-year yield to 15% and the 2-year yield, which more closely reflects default risk, soaring by 16 percentage points to 37%.

The trouble in the markets was not confined to Greece although the reaction was far more dampened in other areas. ETFs linked to the Euro Stoxx 50 index, such as the £3.2 billion db x-trackers Euro Stoxx 50 UCITS ETF (DR) (XESX), fell around 4%, while those linked to London’s FTSE stumbled lower by 2% and Germany’s DAX by 3.6%. The US suffered too due to Europe being one of their main trading partners; the S&P 500 fell 2.1% and the Dow Jones Industrial Average dropped 2%.

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