Everything You Should Know About Greece

| About: Global X (GREK)

Summary

Leading indicators point towards lower growth/contraction.

Official retail sales and industrial production will continue to decline.

GDP is likely to contract even further.

In this article I mainly aim at investors who are considering to buy Greek stocks. First of all, the easiest way for Americans to invest in Greece is buying the Global X MSCI Greece ETF GREK. This ETF consists of the biggest Greek companies and is the least volatile investment I can think of. I personally have traded Greek banks on the Athens stock index but I am not sure if everyone has access to these stocks. Therefore, we only focus at GREK.

First, let's look at the Greek purchasing manager index. The PMI can be considered as one of the best leading indicators for stocks and the economy. In the case of Greece there is some disconnection. The main reason is the fact that the Greek economy is depending on decisions made in Europe. Whether they bail Greece out one more time or not. Secondly, smaller countries are highly effected by the economy of bigger countries. Hence the disconnection between stocks and leading economic indicators.

Stocks are not reacting to the PMI anymore. The correlation vanished in 2014 and has not come back since then.

In addition to the PMI (which is conducted by Markit), there is the European Sentiment Index. The ESI is almost the same as the PMI. It's a leading indicator that publishes the sentiment of several sectors including the weighted average.

The ESI, which is the weighted average of building, consumer, retail and building sentiment is rising since the August 2015 bottom but is still below the May 2014 peak.

Consumer sentiment is in a free fall since March of 2015. The uptrend since 2011 has been broken and it looks like there will be no growth in the consumer business. Or at least, contraction won't be close to zero in the first half of 2016.

Industrial sentiment has rallied from the August lows but is peaking at the moment. A troubling signal given the fact that industrials are the most value adding companies in an economy.

Official data is confirming leading indicators. Retail had some growth in 2014 but is declining rapidly again. The difference between the US and Greece is that retail sales in the US are slowing. Greek retail sales are declining close to double digits.

Industrial production shows the same picture as the leading indicator. The sentiment rally resulted in growing industrial production in 2015. However, the party is over and production has entered the contraction zone again.

Now, last but not least: GDP growth. GDP growth confirms both leading and coincident (industrial production & retail sales) indicators. GDP went up in 2014 but entered contraction in 2015.

If you are interested in investing in Greece, keep in mind that leading indicators point towards lower growth. Retail sales and industrial production are likely to fall further which means that GDP will fall further. In other words: absolutely no growth over the coming few months.

In addition to all that has been said, Greece has a debt-to-GDP ratio of almost 180%. It doesn't really matter whether GDP is up 3% or down 3%. If the Euro Zone decides to throw Greece out of the Euro Zone, the economy is likely to have a total reset.

I advise everyone to ignore Greece for next few months.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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