Greek Contagion Concerns Attract Bears to Spain, Italy
By Inyoung Hwang
Traders are buying up protection should Greece?s potential exit from the euro trigger a domino drop in Spanish and Italian stocks.
Investors are pulling out of exchange-traded funds tracking the equities, while driving up costs to hedge against declines. The price of bearish options versus bullish ones on the iShares MSCI Spain Capped ETF hit a 20-month high last week, while the cost of the contracts on the iShares MSCI Italy Capped ETF jumped 27 percent since early December, according to data compiled by Bloomberg.
Greek Prime Minister Antonis Samaras has said a victory for the Syriza opposition party in the Jan. 25 election would lead to default and an exit from the euro. Spain and Italy are also facing the rise of anti-austerity sentiment. Things will get even worse should European Central Bank President Mario Draghi fail to devise a stimulus plan that satisfies investors, according to Max Breier of BMO Capital Markets Corp.
?If things go poorly in Greece, that would spell trouble for Europe as a whole, but in particular peripheral European countries that are struggling to stick with fiscal reform measures,? said Breier, a senior equity-derivatives trader at BMO in New York. ?Right now things are contained, but this level of containment is largely pinned on the hope that Draghi will announce a large sovereign-bond purchase program.?
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