The ones who bring trouble are also the ones who seem to be enjoying the most from Greece mess.
Matthew Winkler of Bloomberg has a story:
Lots of smart people expect Greece to default and leave the European Monetary Union. Global investors are not among them.
Even before Greece reached its bailout deal with European creditors this month, few investors thought Greece would exit the euro zone. Despite continuing turmoil, they still don’t. Why not? Because the market has confidence in the benefits bestowed by the common currency — and even more confidence that Greeks view things the same way.
You can see it in the price of Greek bonds. If investors thought default was likely, the bonds would get cheaper. What’s happened is the opposite. Anyone who bought Greek debt when the euro exit choir was loudest and sold it today has done well. Since April 20, Greek government bonds returned 18.5 percent — the only positive return of any euro-zone country, according to the Bloomberg Eurozone Sovereign Bond Index.
That’s the short-term picture. For a longer perspective, look at interest rates on the 10-year Greek bond, the benchmark of the country’s debt. They’ve come steadily down from a historical high in 2012 of 30.6 percent to 10.8 percent now. This too would never have happened if investors thought default or a euro exit was likely.
The author does not say it but the obvious reason is moral hazard. The investors are speculating that it is unlikely that either Eurozone or Greece lets the latter exit. The warnings are referendums may continue but they just seem to be a dram of sorts:
It’s fair to ask: How could anybody be optimistic about the economic prospects of a country with 26 percent unemployment, the worst perception of creditworthiness in the world (based on credit default swap prices) and a debt load equal to 175 percent of the country’s GDP?
One reason is faith in the euro.
Remember 2011? When soaring yields on euro-denominated debt and depressed stock markets revealed widespread anxiety that the European Union would unravel with serial defaults of Spain, Portugal, Ireland and Greece? Since then global investors have embraced everything denominated in euros. The bonds and stocks of Greece are no exception.
Europe has become brighter during the past four years. The yield on bonds of European governments declined to 0.92 percent from 4.68 percent, according to the Bloomberg Eurozone Sovereign Bond Index.
Stocks of the 442 companies that make up the MSCI Europe Index appreciated 43 percent since April 2011 and 19 percent so far this year, beating the rest of the world. Those are bets on the power of the euro to boost struggling economies. Take the example of Spain, which in 2011 was perceived to be the biggest threat to EU stability, dwarfing the Greek peril. Spain now is the fastest-growing among Europe’s major economies after five years of shrinking gross domestic product starting in 2009. Spain grew 1.4 percent last year, and its economy is expected to expand in 2015, 2016 and 2017, according to economists surveyed by Bloomberg.
Even Spain’s banks are flourishing after struggles that made them a symbol of European financial weakness during the financial crisis. Banco Santander and Banco Bilbao Vizcaya Argentaria are among only four of the 20 largest banks in the world that managed to see increased profitability during the past 20 years.
We know much of the rise is because of ECB magic. It isn’t the case that profits have come due to sound economics or something.
It is not that global investors have not lost in such games. They lost money in Russia default. But the default of a country is much lower compared to companies. And despite these one times losses, global investors continue to shock with their evergrowing profits and take home salaries.
Making money off someone’s misery is nothing new for this so called global finance world.