Ultimate contrarian trade (Part 2)


Greek regulators are finally taking steps to reopen the Athens stock exchange.  After a month of closure, it will be interesting to see how volatile the market will be during the first few days of trading.  Will investors run for the exit or has prospects of a European bailout managed to calmed nerves?

This is a chart of the Athens Stock Exchange index from 1 Jan 2007 to 26 Jun 2015 (last day of trading before closure).  Over this period, the index hit a high on 5334 points in Oct 2007 and fell to a low of 476 points in Jun 2012.  This drop represents a fall of 91%, greater than the fall experienced in the Great Depression.  The index value as at 26 Jun 2015 was 797 points, whilst 60% up from the lows in Jun 2012, it is still 85% below the highs reached in Oct 2007.











A good way for foreign investors to get exposure to the Athens Stock Exchange is by investing in an ETF listed on the New York Stock Exchange called Grek (The Global X FTSE Greece 20 ETF).  This ETF is designed to reflect the performance of the twenty largest securities listed on the Athens Stock Exchange.  The top 10 holdings are as follows:



This ETF has continued to trade throughout the Athens Stock Exchange closure period and its currently trading at $9.75 whilst its net asset value (NAV) of $9.95.  This NAV is however dated, as it is based on stock prices which are a month old (with the exception of the fund’s largest holding Coca-Cola HBC AG which is dual listed in Greece and London).  It appears that the ETF investors are currently not pricing in much movement in NAV once trading re-starts on the Athens Stock Exchange.

Yes, the immediate crisis will be averted by the €86 billion bailout but with this third round of bailout and with even more austerity measures, haven’t we seen the ending to this movie? Einstein once said that the definition of insanity is doing the same thing over and over again and expecting a different result.  It will be interesting to see how investors react to this “insanity” once the market re-opens.

PS: I’m pleased that I’ve wrote about a security which is relevant to visitors from the US … 


Ultimate contrarian trade (Part 1)…

Financial crisis

The current unfolding crisis in Europe intrigued my curiosity about investing in Greek shares during this very uncertain period.  I know that investors tend to overreact and that the best time to invest is when everyone throws in the towel (capitulation), which is typically associated when fear is at it’s highest (be fearful when others are greedy and greedy when others are fearful).  I don’t know a whole lot about the current crisis but I’m quite certain that the 10 million Greeks will still need goods and services and that Greek companies will provide those goods and services regardless of whether Greece stays or leaves the Euro zone. Whether or not these goods and services are exchanged for Euro or new Drachma is not of vital importance in the long term.

To get a sense of potential returns from investing at the capitulation point in a crisis, I have looked at 5 major financial crisis which I think all bear some similarity to what is happening in Greece today.  The similarities are one or a combination of the following: sovereign default, systematic banking failures, drop in GDP and economic activity, asset price contraction, bailouts from either the IMF or ECB, high unemployment rate from jobs losses, political turmoil etc.  For each of the crisis, I have charted the main stock market index from a high before the crisis to a 5 period after a capitulation point was reached. In chronological order:

  • The Great Depression (1929 – 1939) – arguable the worse economic crisis of the 20th century.

US great depression





  • Asian Financial Crisis (1997) – this crisis resulted in massive currency depreciation, bank failures, IMF bailouts and regime change for countries below.

Indonesia (AFC) Korea (AFC) Thailand (AFC)







  • Russian Rubble Crisis (1998) – Default on Russian debt resulted in 66% devaluation of the Rubble with inflation reaching 83%.

Russia crisis





  • Argentinian Great Depression (1998 – 2002) – This depression saw Argentina default on its debt, unemployment of 25%, 80% depreciation of the Peso and fall of the government.

Argentina (crisis)





  • Global financial crisis (2008) – For the countries below, this resulted in massive banking failures and effective nationalisation of the banking sector.  Ireland received an ECB bailout and Iceland’s banking collapse was arguable the largest ever experienced by any country.

Ireland (crisis) Iceland (crisis(





Summary of the extent of the stock market decline for each crisis and the subsequent 1 year, 3 year and 5 year returns are as follows:

Summary capitulation






Note that Russia experience a rapid recovery from higher oil prices. 

The data above shows that the range of stock market falls is between 65% – 95% with the average fall in stock market of about 80% from the high to the low.  In terms of the current Greek stock market falls; from a high point reached in October 2007 of 5334.5 points to the current period (end June 2015) of 797.5 points, the stock market has loss 85% of its value.  Comparing with the above crisis, this fall would rank as the 3rd worse drop in stock market performance.

In my next post I’ll write about how to invest in Greece as a foreign investor (even though the stock market is still currently closed).

Ohh, before I forget … check out this letter penned by Mr. Friedman in 1997 on the Euro.