Quote from Daal:
I believe the main difference between these types of bad news and Greek bad news is that if the Greek risk pans out (EUR exit) its a guaranteed loss of 40-70% on drachma re-denomination, in the case of Brazil or Argentina its just an economic number or something else that can be safely ignored by the markets. I want to buy Greece but I'm scared of this possibility
Although there's always a small chance, the ECB and EU institutional elite seemed to pretty much rule that out last year - and even if they hadn't, the odds of them letting the whole 50 year EU project blow up because of one economically small country is unlikely. It is highly unlikely that Greece unilaterally devalue without some noises and lectures not to from the Eurozone leadership first.
Secondly, if the markets fear devaluation then short-term interest rates in Greece will skyrocket, as they have done before all (to my knowledge) prior devaluations in other countries. Argentina and Brazil a decade or so ago, UK in 1992, Asia in 1997, Russia 1998 and so on. Insiders almost always know, and always hedge desperately, which shows up in the rates on otherwise low-risk t-bills.
Third, you can hedge this risk by purchasing Greek stock index futures on margin instead of outright cash purchase of equities. Or a more crude hedge would be to purchase export-oriented businesses. For example, index futures went to a giant premium over cash in Argentina just before their devaluation (due to the interest-rate arbitrage component of stock index futures fair value), entirely compensating for the devaluation loss.
Finally, if Greece does devalue, then the bottom will be fairly near. Thus investing a half position now, and keeping half in reserve for any devaluation (or all-clear that devaluation is off the cards), means that heads you win, tails you win even more (long-term), albeit with some short-term losses. I do however agree that the risk means you can't bet the farm on this play.
