‘Spectacular rallies’ await investors who buy Greece now

After months of complacency, a little fear has crept back into the markets. Fear is good because one of the best ways to make money is to buy fear, says Lawrence McDonald, head of U.S. macro strategy at Societe Generale.

A good way to buy fear is to go long on Greek stocks via the exchange traded fund Global X FTSE Greece 20 ETF GREK, +6.01% “Over the next week, there is a good chance we may see spectacular rallies, because this is by no means over,” says McDonald.

McDonald sees Greek shares as more of a trading opportunity but, ultimately, he thinks Greece will stay in the eurozone, which suggests the Global X FTSE Greece 20 ETF might be good for the long haul, too. “We’re optimistic that a resolution will be reached,” he says.

Even if we get a Grexit, several positives in that scenario will help Greek companies in the long run. (More on that below.)

If Greek stocks seem too risky, here is a safer way to go: Swap U.S. stocks for the cheaper shares of European companies getting hit by Europe’s latest Hellenic headache. European economies have been improving, maintains James Paulsen, chief strategist at Wells Capital Management. And Europe is still in a phase of monetary easing compared to the U.S., which is headed into a tightening phase, he says.

An ETF to consider for the job here is Vanguard FTSE Europe ETF VGK, -0.59% down 7% from May peaks. It now offers a 3.3% yield. If you prefer individual stocks, consider quality banks and insurers getting hurt like ING Groep ING, +2.28% Credit Agricole CRARY, +0.13% Societe Generale SCGLY, +0.32% and Intesa Sanpaolo ISNPY, +0.05% say analysts at Credit Suisse, which has an “outperform” rating on all of those companies.

Of course, to buy fear, you have to have some rationale for thinking the fear is overdone. Here are my five reasons why the current fears about Greece are exaggerated.

1. Greece will not be another “Lehman.”

One of the reasons for the Greece-related selling on June 29 was that New York Federal Reserve Bank President William Dudley mentioned the dreaded “L” word while cautioning investors about a potential Grexit contagion, says Ed Yardeni of Yardeni Research. Said Dudley in a media report: “People did not anticipate that the Lehman failure was going to affect the economy and financial markets to the degree that it did.”

Ouch. No one wants to hear Lehman brought up at a time like this.

And they shouldn’t have to, since most of Greece’s debt has been moved out of private hands and on to the books of European governments. European bank exposure is minimal, says Credit Suisse analyst Carla Antunes-Silva. Yardeni says: “I seriously doubt that the contagion potential of a Grexit is comparable to the financial meltdown triggered by the Lehman debacle.”

2. Greece’s missed 1.5 billion euro payment to the International Monetary Fund this week probably won’t lead to a default disaster.

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