Global markets rolled over as the latest drama from the European Union — a result of yet another setback in reaching a Greek debt deal — sent investors ducking for cover. None was worst hit than shares of National Bank of Greece (NBG), which tumbled more than 23% on June 29, succumbing to the ignominy of being a sub-dollar stock.
The national crisis took on a particularly personal tone over the past weekend when Greek Prime Minister Alexis Tsipras abruptly called a referendum on negotiations with international creditors, sparking a veritable bank run among pensioners and everyday Greek citizens.
Not surprisingly, the markets and global financial agencies took a dim view towards Tsipras’ decision, punishing not only shares of NBG, but also the Mediterranean country’s credit ranking. Standard & Poor’s quickly pushed down the perceived safety of Greek debt levels to CCC- from CCC, a junk-level rating that was justified due to fears that the “Tsipras government will prioritize domestic politics over financial and economic stability, commercial debt payments, and eurozone membership.”
The benchmark credit rating agency proposed a 50% likelihood that Greece will eventually vacate the eurozone, a bearish indictment considering that a “snap Reuters poll of economists and traders found a median 45 percent probability” that the EU will lose its most troublesome member.
Worse still, Tsipras’s audacious rejection of creditors’ proposals surely will end emergency lending funds from the European Central Bank, thus creating a potential liquidity crisis for National Bank of Greece and its competitors.
On Tuesday, Greece reportedly proposed a two-year bailout program — news of which helped push NBG stock back over the $1 mark — and talks with its lenders were continuing into the final hours.
Fundamentally, the crisis appears irresolvable. Tsipras, like most leaders, has an obligation to uphold political and national pride. At the same time, the EU must maintain the integrity of its infrastructure and can ill afford to look weak at a time of great geopolitical turmoil. Lost in the tug-of-war are individual Greeks, who continue to bear the weight of fiscal mismanagement and high unemployment.
But the problem with the Greek debt crisis didn’t originate overnight and trading behavior in the markets — specifically for National Bank of Greece shares — indicate some basis of optimism, albeit extremely slight. For example, one might expect that NBG’s volatility has progressively worsened over the past few years.
However, this is not the case, according to data from rolling one-year averages for NBG stock’s month-over-month performances.
Instead, what we find is that since October, data points representing months of underperformance have clustered tightly together. This is significant because immediately following the onset of the 2008 global financial crisis, shares of National Bank of Greece had a tendency of “dead-cat bouncing” off of such negative clusters.
In addition, outside of an acute pullback in June 2013, the rolling average of monthly performances for NBG has not struck new lows.
The quick counterargument is that NBG has not yet posted new performance highs either — or anywhere close to such levels — but with all that has imploded in Greek fundamentals, it’s at least encouraging that National Bank of Greece is still holding onto something. And if timed correctly, NBG stock potentially offers quick profits in what may turn out to be a brief respite in bearish activity.
Above all, do not confuse National Bank of Greece as a viable long-term opportunity. NBG stock has a beta of 4.56, which is all you need to know about its future prospects. But every dog has his day — no matter how brief — and that moment may be coming shortly for NBG based on its historical trading patterns.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
