I have been posting for a while now that I think Greece provides the greatest upside potential. Greece’s sovereign bonds outperforming was one of my ten surprises for 2013 three months ago. And with bond yields now falling below 10%, Morgan Stanley is getting onboard so I am not the only one recommending this trade. I would also posit here that Greek equities have been well beaten down and trade at low multiples based on low earnings, meaning that if recovery does take hold in Greece as I expect it to, then you will get a double benefit from earnings growth and multiple expansion.
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This bet is not for the faint of heart because the situation in Greece is still tenuous and it could take a turn for the worst. However, increasingly indications are that the worst is over and that Greece has bottomed. I would expect the largest gains to be made now in both bonds and equities.