Can you name the best-performing stock market in the world this year?

No, it’s not the United States. It’s not China. It’s not any of the world’s largest economies. In fact, it’s a country that has been an economic mess for most of the last decade.

Greek stocks are on an absolute tear in 2019. The MSCI Greece Index is up more than 33% year-to-date, compared to a 24% gain in the S&P 500 and a 14% gain in the MSCI Europe Index.

Is this extraordinary rally in Greek stocks going to continue? And if so, what does that say about the investment potential of other distressed economies?

Today, we’re taking a deeper look into the Greek economic miracle...

Why Greek Stocks Are Beating the World

Ten years ago, Greece was in its deepest post-World War II depression. Almost a third of Greek adults were out of work, GDP had fallen by double digits from its 2007 peak, and the government was headed toward a default on its IMF loans.

So how did the country go from that to record stock market gains so quickly? In short, through a combination of organic recovery and smart policy changes.

For one thing, in the aftermath of the economic meltdown, Greek-made goods and services were simply a lot cheaper than those made in peer countries.

That cheapness led to a surge in agricultural exports, as well as a boost in tourist traffic (which accounts for roughly a fifth of Greece’s economic activity).

For another, the country has been moving away from the populist economic policies that landed it in hot water in the first place.

The country’s new prime minister, Kyriakos Mitsotakis of the centrist New Democracy Party, has initiated a package of reforms to improve the Greek business climate and attract foreign direct investment, including tax cuts, a streamlined welfare system, and an accelerated repayment schedule for the country’s IMF loans.

Will the Rally Continue?

These measures have already delivered dramatic results to investors, and there’s reason to believe Greece’s recovery isn’t over yet.

After all, the Athens Stock Exchange composite index is still down by a whopping 83% from its 2007 peak. And the country’s GDP is still down 25% from that year.

But forward-looking metrics give cause for optimism.

Greece is currently the only country in Europe whose purchasing managers’ index (PMI) is above 50. That indicates growth in manufacturing, which the country will likely need in order to meet demand for its exports, given its steadily falling trade deficit.

Greek consumer confidence is at its highest level in two decades — and judging by the yields on Greek sovereign debt, lender confidence is recovering as well.

In fact, Greek bond yields have fallen so far since their early 2010s peak that the country now borrows money at the same cost as Italy.

And its new government has more pro-business reforms in the pipeline. Finance Minister Christos Staikouras recently announced that the government has allocated 1.2 billion euros for further tax relief next year.

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The Next Comeback Story

There’s an investing lesson to be learned from Greece’s incredible recovery: Countries don’t go out of business. They might fall on hard times, and they might even default on some of their sovereign debt (as did Greece), but every economic disaster eventually ends.

And when it does, the affected countries still exist — and inevitably recover. What goes down must come up, so to speak.

You can use this principle to beat U.S. markets by investing in distressed economies at the beginning of their recovery periods.

Greece isn’t the only country that has recently delivered big gains to investors this way. The MSCI Russia Index has also handily beaten the S&P 500 over the last year...

Which distressed economy will be the next great comeback story? It’s hard to say.

Nigeria, South Africa, and Argentina are all in the midst of economic crises today, but it remains to be seen whether their governments are capable of picking up the pieces.

Analysts Christian DeHaemer and Luke Burgess have been advising their Bull and Bust Report subscribers to invest in another distressed economy — one whose geopolitical importance should reward its shareholders handsomely.

They're also watching markets closely for the impact of a dramatic worldwide regulation that kicks in in 2020 — and they'll tell you how to profit from it. Click here to learn more.

Until next time,

Samuel Taube

Samuel Taube brings years of experience researching ETFs, cryptocurrencies, muni bonds, value stocks, and more to Wealth Daily. He has been writing for investment newsletters since 2013 and has penned articles accurately predicting financial market reactions to Brexit, the election of Donald Trump, and more. Samuel holds a degree in economics from the University of Maryland, and his investment approach focuses on finding undervalued assets at every point in the business cycle and then reaping big returns when they recover. To learn more about Samuel, click here.