What should you do if Greece leaves the eurozone? Your immediate instinct might be to stock up on canned food and ammunition. But a better bet might be to buy the Greek stockmarket. If that sounds mad, remember that by abandoning the constraints of euro membership and reintroducing a central bank with the power to pump liquidity into the economy, Greece may actually lay the seeds for economic revival.
If you imagine that defaulting on its international debt a near-certainty if Greece departs from the euro might consign the country to years of being cold-shouldered by global lenders, think again. Time after time countries have shown that defaulting only results in temporary exclusion from the international capital markets. In any case, since they've just shed the last lot of debt, they don't need to borrow again for a few years anyway.
As for a country's equity markets, a devaluation and default can lead to a boom. Russia, for example, defaulted in 1998, but its share index went up ten-fold from 1999 to 2007. Argentina's rose eightfold in local currency terms between 2001 (when it defaulted) and 2005.
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Trying to invest in a country that's just defaulted is risky, of course. You don't know when the new currency will bottom out, so you risk foreign-exchange losses if you buy too early. The local central bank may introduce currency controls, making access to the market difficult. If you're investing via an index, there's almost certain to be some turnover in the constituents as a result of the turmoil. In Greece, there's a question over whether the local banks, which own a lot of government debt, could survive a default. Their share prices are already near zero.
So it's a speculative punt only risk money that you can afford to lose. But at the same time, a Greek default and euro exit has been discussed for so long now that a lot of the bad news is probably already in the price. However, wait until the actual devaluation and default has occurred before buying.
One European exchange-traded fund (ETF) allows you to invest in Greek equities (we've ignored those run by local banks, which are too risky). The Lyxor ETF FTSE Athex 20 (Paris: GRE) tracks the largest 20 stocks on the Athens stock exchange and costs 0.45% a year. It trades in euros and you'll need an account offering access to the NYSE Euronext Paris to buy it.
Paul Amery edits www.indexuniverse.eu.
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