Ride The Wave Or Fade It? ETFs For Greek Election Results
Greece will hold elections Sunday. Many market observers believe the battle between radical leftist Alexis Tsipras and New Democracy leader Antonis Samaras could decide the country's future relationship with the Eurozone.
Widely viewed as the first country to potentially depart the 17-nation common currency scheme, Greece and its fiscal woes have been roiling global markets for nearly two years. Tsipras opposes the terms of bailout plans, but has said he wants his country to remain in the Eurozone. His opponent Samaras, who supports the bailout, has said he would like to renegotiate terms of a loan deal in an effort to inflict less pain on the Greek populace.
No matter the outcome, a Greek departure from the common currency and subsequent return to the drachma would have dire consequences. Greek banks are already seeing up to $1 billion per day in withdrawals, and could be crushed by a drachma return. Citigroup (NYSE: C) said last month that the new drachma would immediately lose 60% of its value.
To say this election is important is an understatement. Traders can prepare for the outcomes with the following ETFs:
Global X FTSE Greece 20 ETF (NYSE: GREK) An obvious play, but it is worth noting that thinly traded GREK saw its volume explode on Thursday. Speculation was rampant that global central banks were preparing plans to inject liquidity into the international financial system following the Greek elections. That rumor sent GREK up 12.5% on better than quadruple the fund's average daily volume.
Financials account for a third of GREK's allocation, which amplifies the impact Sunday's election could have on this ETF. GREK has gained almost 19% in the past five trading days and that rapid gain could underscore the ETF's vulnerability on the downside. On Thursday, it took less than 64,000 shares to move this ETF up almost 13%. In other words, it wouldn't take many sell orders to send GREK to a double-digit loss after the election.
Vanguard MSCI Europe ETF (NYSE: VGK) The Vanguard MSCI Europe ETF is not heavy on Greek equities, but it is one of the premier Europe ETFs. Despite the fact that VGK is home to plenty of blue-chip names, the Europe label has plagued this fund, which has lost almost 22% in the past year.
VGK recently found support near $38, but the fund faces what could prove to be stiff overhead resistance around $42. If things do not go well in Greece on Sunday, resistance will not be a problem for VGK. Those looking to hedge a long-term position in VGK or make an outright bet against the fund should consider the ProShares UltraShort MSCI Europe (NYSE: EPV).
Guggenheim Shipping ETF (NYSE: SEA) In 2011, Greece's economy was the 34th-largest in the world, according to the CIA World Factbook. That is just small enough to ensure the country does not receive a lot of large allocations among ETFs offering international exposure.
The Guggenheim Shipping ETF, a a fund that is sensitive to macroeconomic trends, features a 10.5% weight to Greece. That makes SEA the ETF with the second-largest Greece exposure after GREK. Stormy seas could await this fund come Monday.
iShares MSCI Spain Index Fund (NYSE: EWP) EWP has jumped almost 4.5% in the past week, but the only way this downtrodden fund keeps that momentum going is for global markets to be truly satisfied with the Greek election results. If that does not happen and Greece stamps its ticket out of the Eurozone, traders' attention will shift to Spain on speculation that the country will follow Greece out the door.
Spain's bond yields remain elevated and the country is teetering on the brink of a move to non-investment grade status. That means EWP is not to be trusted as anything more than a short-term trade.
PowerShares DB Italian Treasury Bond Futures ETN (NYSE: ITLY) ITLY and its leveraged cousin, the PowerShares DB 3x Italian Treasury Bond Futures ETN (NYSE: ITLT), are direct plays on Italy's problems, but the order of the European dominoes appears to be Greece, Spain then Italy. Bottom line: If Greece heads out of the Euro Zone, investors are not going to be putting cash to work with Italian bonds.
iShares Gold Trust (NYSE: IAU) For much of 2012, gold has behaved like a risk asset, not a safe haven. The yellow metal's risk status has been changing for the better over the past month. The CurrencyShares Euro Trust (NYSE: FXE) is down 1.7% since May 15, but IAU is up 4.3%.
Those looking to make a bet against moving to the upside post-Greece elections should consider the PowerShares DB Gold Double Short ETN (NYSE: DZZ) or the PowerShares DB Dollar Bullish (NYSE: UUP) as a more conservative option.
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