Greece, Puerto Rico And China Not That Different Over Long-Term, Macquarie Warns

With the potential for a Greece exit from the Eurozone looming large, Macquarie Research analyst Viktor Shvets released a report on Monday comparing the situation in Greece to the economic situations in China and Puerto Rico. In the report, Shvets addressed concerns that Greece’s economy may be only the first in a series of global dominos to fall.

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Puerto Rico

According to Shvets, Greece and Puerto Rico share several concerning key traits. First, both countries are inefficient and uncompetitive in the global market. Second, the political and business worlds of both countries are mired in favoritism and corruption.

Related Link: Here's How Many Europeans Want Greece To Leave

Third, both countries have massive public sectors. Fourth, due to the reasons described above, both Greece and Puerto Rico have massive, unstable debt burdens. And finally, neither country has an independent monetary policy.

China

While China and Greece may not have much in common to the casual observer, Shvets points out that China is currently beginning to deal with deficiencies in its business world as well. Fortunately for China, the nation has a large degree of financial and monetary flexibility that will allow it to take an aggressive approach in combating its economic downturn.

Shvets argues that the small interest rate cut and RRR and margin financing relaxation in China in the past week are similar to the tentative steps the ECB took back in 2009-2011 before the recent wave of aggressive European quantitative easing.

Outlook

The world will be watching the outcome in Greece, but nations with high debt burdens (and their investors) will be particularly interested. “It seems that investor belief in the ability of monetary and public sector policies to delay the day of reckoning until a less painful solution to inevitable de-leveraging is found might be starting to unravel,” Shvets writes.

Macquarie currently has an Overweight rating on the MSCI China Index (MXCN). Greece fears have pushed the Global X FTSE Greece 20 ETF GREK down more than 7.1 percent and the SPDR S&P 500 ETF Trust SPY down nearly 0.5 percent in early trading on Monday.