GREK Collapses As Greece Crisis Looms

The Global X FTSE Greece 20 ETF (GREK | D-63) took a nose dive early Monday, dropping some 20 percent at one point in early trading, following a breakdown in negotiations between Greece and its eurozone lenders over the weekend.

GREK, the only U.S.-listed ETF to offer focused exposure to Greek equities, had already been struggling to find much upside throughout this year even as investors continued to buy dips. Year-to-date, more than $277 million in fresh net assets have flowed into this fund, which has only about $311 million in total assets. Monday, GREK dropped to levels not seen since early 2012.

Chart courtesy of StockCharts.com

A closer look at GREK’s performance today could speak to the magnitude of the impact of the latest news on Greek companies.

GREK’s portfolio, which tracks a market-cap-weighted index of the largest Greek names, includes two companies that have foreign listings—Coca-Cola HBC, at 19.82 percent of the portfolio; and Viohalco, at 0.85 percent. Coke was trading only about 2.5 percent lower this morning, while the latter was down some 8.5 percent. And yet the ETF was down some 20 percent in early trade—an outcome that’s most likely linked to its Greece-listed securities.

What’s At Stake

Greece was once at the epicenter of the eurozone’s debt crisis following the U.S. credit collapse back in 2008. It’s now back in that position. More than $350 billion of Greek debt will be in default to the IMF if Greece doesn't make a payment on Tuesday, according to reports. The Greek government has declared it a bank holiday until July 6 as it tries to navigate the problem ahead of a referendum vote on Sunday, but by most accounts, Greece will default.

The crisis might not cause Greece’s commercial banking system to collapse entirely, because the debt is spread around various banks, but it could severely damage some institutions that carry most of the burden, said Scott Minerd, global chief investment officer at Guggenheim.

As the ECB cuts off additional lending to Greek banks, it will soon become evident which institutions will suffer most. Beyond the Greek border, there’s also the possibility that counterparty or derivative risks “could be hidden in the system, for instance as happened with AIG,” Minerd said.

After an election that brought an anti-austerity government into place in Greece last year, and months of back and forth talks with eurozone leaders, policymakers around the globe woke up Monday to the worst possible scenario, and one they were not “prepared to cope with,” Minerd said.

“The size and magnitude of foreign exposure of Greek liabilities to other Western counterparties is at this time is unclear,” he said. “As for the markets, just as on the Monday after the Lehman failure, we should expect plenty of turmoil.”

Both the S&P 500 and the Dow Jones industrial average were trading about 1 percent lower early Monday.