How To Play Europe In Spite Of The Greek Tragedy [iShares MSCI Germany Index Fund (ETF), iShares Trust]

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May 8, 2015 12:10pm NYSE:EWG NYSE:EZU

europeGeorge Leong: The Greece crisis is akin to a friend who can’t manage their spending and is always in need of cash. The debt-ridden country known for its beaches, olives, and antiquities just doesn’t seem to get it. After a bailout program that saw


about $265 billion flow into the dried up coffers in Greece back in 2010, the country is really nowhere near surfacing out of its financial crisis.

The country was predicted to rebound out of its recession in 2012. This never happened. Greece only recently emerged from its recession, but this is expected to be short-lived; the country will likely falter back into a recession this year.

To make matters worse, the country cannot repay its loans. Greece is demanding to revamp the requirements of its austerity program and associated loans. A threat to exit the 19-country eurozone has also been discussed. In this scenario, Greece would simply leave and try to fend off the debt collectors.

No matter how you look at it, the financial crisis in Greece is distracting, to a eurozone trying to focus on getting back to the good times. It’s more of a major pain than the trigger for a possible collapse of the euro. Germany is trying to keep the eurozone intact, but a Greece exit would not kill the region.

Why the Greece Crisis Has Little Impact on the Eurozone 

The economy of Greece, based on the nominal gross domestic product (GDP), was around $242 billion in 2014, the lowest since 2006. Suffice it to say, things aren’t getting better. The amount of the bailout was more than the country’s GDP in 2014. As such, the contribution of Greece to the eurozone is somewhat muted and not a major factor. (Source: Trading Economics, May 2015,http://www.tradingeconomics.com/greece/gdp.)

The European Commission (EC) increased its estimate for the eurozone real GDP to 1.5% this year, with an expectation for it to rise to 1 9% for 2016. The growth metrics are only slightly less than the GDP estimates for the European Union.

A good recovery in two of the weaker countries, Italy and Spain, is helping to boost the overall growth of the region, regardless of the financial mess in Greece.

Greece is estimated to see its economy grow at 0.5%, way down from the previous 2.5% estimate. But I wouldn’t be surprised to see economic contraction in the country return.

How to Play Europe in Spite of the Greek Tragedy

I would push aside the Greece debt mess that continues to dominate the headlines and focus on tech growth in Europe, along with the eurozone being driven by the weak euro.

We are currently seeing a small pullback from the recent highs in European stocks. Nonetheless, we think there are excellent investment opportunities there.

You can consider playing greater Europe through the iShares S&P Europe 350 Index Fund (NYSEArca/IEV) or the iShares MSCI EMU Index (NYSEArca/EZU). For a more focused investment in Germany, look at the iShares MSCI Germany Index Fund (NYSEArca/EWG).

Note that these ETFs are unhedged and hence impacted by the movement of the euro. You can also play the hedged versions of some of these funds.

However, remember that these are not recommendations to buy; just suggestions for the type of investment strategy you can employ to profit from the European situation.

This article is brought to you courtesy of George Leong.


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