For this week's SIA Equity Leaders Weekly, we are going to focus on the Greek Debt Crisis and to have a look at who potentially on a Relative basis may get hurt the most if Greece defaults.
As most of us are aware, Greece is up to its ears in debt and a default could cause significant collateral damage. Their total public debt is more than 315 billion euros, which is about $350 billion USD. The European Financial Stability Facility is Greece's largest creditor, who has lent the country close to 142 billion euros, which is about 45% of its debt. Some of the other large creditors include, Germany at 56 billion euros, France at 42 billion euros, and the International Monetary Fund at 25 billion Euros.
On a total dollar basis, Germany is obviously the most exposed country, but German taxpayers are far less exposed to Greek public debt relative to what smaller euro-area members are able to afford. We will have a look at a country who in terms of GDP is much more exposed to this risk.
Global X FTSE Greece 20 ETF (GREK)
First let's have a look at a popular ETF which gives investors exposure to the Greek stock market: The Global X FTSE Greece 20 ETF seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the FTSE/ATHEX Custom Capped Index.
The FTSE/ATHEX Custom Capped Index is designed to reflect the performance of the twenty largest securities listed on the Athens Stock Exchange.
As you can see from the chart, GREK has been in a solid downtrend since mid-2014. Over the past 1 year, the ETF has slid from highs near $26, all the way down below $10.
Currently with an SMAX of 2 out of 10, GREK is showing continued near-term weakness against all of the asset classes. Current major support is at those recent lows and a break through $9.81 could take it lower to retest levels not seen since mid 2012. To the upside, resistance is found at $12.94, and then higher up around $14.
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iShares MSCI Spain Capped ETF (EWP)
As mentioned above, on a total dollar basis, Germany is obviously the most exposed country but a more relevant measure would adjust for a country's ability to absorb their potential losses. As a very interesting piece of analysis, when nominal GDP is used to gauge a country's exposure to a default, we find Germany ranking in 8th place behind, France, Slovakia, Estonia, Italy, Spain, Malta, and Slovenia. So on a relative basis, Germany is not necessarily going to be the hardest hit, even though many of us have that impression.
If we look at the popular iShares MSCI Spain Capped ETF we will first of all notice that the ETF is still in a strong uptrend since mid-2012. The pullback that took place starting last summer and bottoming in February has given some renewed hopes that Spain may be able to weather the storm, Though, a break through support around the $32 level may signal a change in trend if the shares continue down below $30. To the upside, major resistance is seen at $42.85; good news out of Greece as far as minimal collateral damage to Spain would likely need to be seen for a test at those levels.
We should note that on a relative strength basis, Spain via EWP ranks very low within the International Equity Developed Markets Report. Currently sitting in the 42nd ranking, EWP is within the Unfavored zone of this report, and has been there since earlier this year.
For a more in-depth analysis on the relative strength of the bond markets or for more information on SIACharts.com, you can contact our customer support at 1-877-668-1332 or siateam@siacharts.com.
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