Investing in Greece: A High Risk, High Reward Strategy

If you watch any bit of news, you've likely seen what's been going on in Greece over the last decade. In 2015, Greece became the first developed country to default on a payment to the International Monetary Fund (IMF). The Greek government-debt crisis was a central focus of the wider European debt crisis, in the aftermath of the financial crisis of 2007-2008. The country's economy experienced a huge downturn, with the following real GDP growth rates:

  • - 0.3% in 2008
  • - 4.3% in 2009
  • - 5.5% in 2010
  • - 9.1% in 2011
  • - 7.3% in 2012
  • - 3.2% in 2013

In total, the recession in the Greek economy surpassed even the United States' Great Depression, becoming the longest recession of any advanced capitalist economy ever.

The Greek Government Debt Crisis

There are many factors that contributed to this large and severe economic crisis, including the cumulative impacts of the Great Recession, an already-weak Greek economy, and, finally, Greek's membership in the Eurozone, which provided it with less policy flexibility.

Key Takeaways

  • The Greek government-debt crisis was a central focus of the wider European debt crisis, in the aftermath of the financial crisis of 2007-2008.
  • In total, the recession in the Greek economy surpassed even the United States' Great Depression, becoming the longest recession of any advanced capitalist economy ever.
  • The Greek economy is depressed; that’s a given; for those who want to take risks, Greece may be a great investment.

Despite the country's reforms, multiple tax increases, and spending cuts, it still required bailout loans in 2010, 2012, and 2015 from the IMF, Eurogroup, and the European Central Bank (in addition to negotiating a 50% deal on the debt it owed to private banks in 2011, which amounted to approximately 100 billion euros in debt relief).

Although the country managed to return to modest growth rates in 2017, 2018, and 2019, the economic impact of the Covid-19 global pandemic is expected to cause a severe recession in the country.

Without getting into the politics, is it a good time to invest in Greece? Some might say, “The country can’t pay their debts. Why invest?” But we know from history that when things look bleak, it's often the best time to invest.

The Time to Buy Is When Prices Are Depressed

Generally speaking, when prices are depressed, that's the time to buy. Here’s what that looks like.

In 2008, Microsoft Inc. (MSFT) was negotiating to buy Yahoo Inc. (YHOO)—two Internet giants competing for market share. Microsoft was in a position to overtake Yahoo and offered more than $44 billion for the buyout. Then CEO Jerry Yang turned down the deal, which analysts across the board said was a great deal. Overnight Yahoo’s stock dropped significantly but recovered the next day.

The idea there was that temporary market fluctuations are the time to invest and capitalize. The Yahoo situation was unique; it was media scare about an ownership issue. The Greek situation is very different. It’s not a temporary hiccup that will balance out, but an issue that runs much deeper.

The MSCI Greece Index

MSCI, the Morgan Stanley Capital International, is an index that tracks markets around the world. There's an all nations index, but there is also one that's specific to just about every country. It's a great way to see how healthy the stock market is in each country. Looking at the history of the Greek index, we see things don't look so hot.

In October 2007, the global economy was fantastic. The Dow Jones Industrial Average was at an all-time high; people and corporations were buying, borrowing, and spending; and the MSCI Greece index looked great. On October 31, 2007, that index hit a high point of 1,040. On May 29, 2015, the index had sunk to just 53.68, which at the time, was an all-time low; just 5.1% of its highest value.

However, in September 2020, Greece's MSCI had fallen even more, to just 16.23. Notably, in 2013, the MSCI took the step of dropping Greece from a developed country back to an emerging market.

Investing in Stocks, Not Euros

As a country, Greece has been in dire financial straits for quite some time. However, there are a lot of companies that are incorporated there and are still doing well. They are still producing, selling, and earning money. The problem is that the financial problems extend well beyond the Greek borders.

For those interested in investing in the country, the bigger issue is that the euro is slipping in value compared to the dollar.

A Greek company that's faring well and earns 10% this year may not look quite as promising when you factor in the exchange rate to convert to dollars. Many analysts are saying that you want to own the stock, but you want to avoid the currency.

The Greek Dilemma

So that still leaves the question: “Should I invest in Greece?” It's still a hard question to answer. The Greek economy is depressed; that’s a given. And since the index is at a mere fraction of its all-time high, there's a lot of room to grow. However, one of the bigger issues is that the euro is holding a lot of countries back (not just Greece). So what does an investor do?

For those who want to take risks, Greece is a great investment. In fact, investing directly into the Greek economy through an exchange traded fund (ETF) like GREK is the easiest way to do so. Another option is finding another mutual fund or index that closely tracks the Greek economy. If you want a gamble that could yield big gains, then invest in Greek bonds.

Those who are a little more risk-averse can still capitalize on the depressed economy. Instead of investing in the country, there are a number of attractive Greek companies still poised to take off. Many of these larger companies will trade on a U.S. exchange, so you don’t have to worry about losing money to the dollar-euro exchange rate.

The Bottom Line

One thing is certain: The Greek economy is in trouble, and there are ways to grow your portfolio by taking calculated risks. You can invest in the country, the index, or the companies that are domiciled there.

If you are young and you have time to recover if things don’t pick up quickly, then the higher-risk-but-higher-reward option might be right up your alley. However, for those who need more of a sure thing, then investing in those companies on the U.S. exchange might be the better choice.

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  1. Microsoft. "Microsoft Proposes Acquisition of Yahoo! for $31 Per Share."

  2. Reuters. "Yahoo Rejects Microsoft Bid."

  3. Morgan Stanley Capital Index. "End of Day Data by Country."

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