If Greeks are confused about which political direction their country should take, imagine how investors feel.
Anne-christine Poujoulat
A man holds a placard bearing the Greek flag.
Should voters Saturday go right, they assure themselves years of growth-stunting austerity that will be long and painful until the country gets its debt under control.
Should they veer left instead, they run an almost certain risk of being ostracized and ultimately booted from the European Union, possibly able to devalue their way out of debt, but shunned from the global economy and left to fend for themselves.
So with two unappetizing options for the Greeks, market reaction is bound to be ... positive?
Oddly enough, many strategists are hanging their hopes on the notion that an ultimate direction for Greecewill give investors some closure and actually lead to a rally.
"The markets have digested an awful lot of the negative implications of the crisis. There's room for positive surprises here," says Rob Lutts, president of Cabot Money Management in Salem, Mass. "When moral hazard becomes evident among countries, we'll be beyond the unknown elements of this crisis."
Of course, not everyone agrees with the best-case scenario, but most everyone in the marketplace has a strategy to deal with whatever becomes of Greece.
U.S. Attorney General Eric Holder speaks as during a news conference to announce Medicare Fraud Strike Force law enforcement actions October 4, 2012 at the Justice Department in Washington, DC.
Here are four ideas either to capitalize on what's happening in Greece, or to brace against the fallout:
Emerging Opportunities
While U.S. stocks have taken a beating since early May, other countries have seen their markets dip, as well. Spain has lost 20 percent in the second quarter, Brazil is down 19 percent, and Italy and Russia are down 18 percent apiece.
Emerging market stocks, where Lutts sees big opportunity, are off more than 11 percent for the quarter, as measured by iShares MSCI Emerging Markets Index exchange-traded fund .
"You have stocks selling all over Europe at eight times earnings. We priced in a really bad recession over there now and we're not getting a really bad recession, except for a few countries," Lutts says. "You could find a 10, 15 percent rally on the back of any kind of interpretation that we're getting (resolution) toward this moral hazard concept."
Under the scenario, even a victory for leftist candidates will be a precursor for a Greek exitfrom the euro zone, which Lutts says will send a positive signal that Europe will not tolerate debt scofflaws.
Betting on Beta
The uber-bulls at JPMorgan Asset Management think that even with Europe in turmoil, there are enough other positives in the world to get the market back to positive momentum.
Selloffs, then, are opportunities where investors can snap up bargains and take risks when others become gun-shy, under the JPMorgan strategy.
"The outlook for Europe and Asia remains uncertain and recent U.S. economic data points have been softish. However, we see supports coming from lower gasoline, recovery in housing and auto demand, and we do expect extraordinary policy response if situations deteriorate," JPMorgan chief market strategist Thomas J. Lee said in a note to clients. "Thus, we still see the secular bull market intact longer term."
Lee says investors should be "adding risk to their portfolios" in the form of cyclicals and high-beta companies that have been beaten down.
Among the firm's picks: Alcoa, Citigroup, Dell, Ford Motor, and Valero Energy.
Forget Paris ... and Europe, Too
Of course, betting on bailouts and trying to play the debt crisisin general has been risky business for investors, evidenced graphically during Monday's resounding thumbs-down on the Spain bailout.
That, too, could mean opportunity, but for euro-averse investors who focus on parts of the market not affected by Greece and its southern European neighbors.
"From an investment standpoint I'd have very little exposure in that area. I wouldn't be aggressive going into this or guessing which way it's going to break," says David Twibell, president of Custom Portfolio Group in Englewood, Colo. "Even if you guess right on the election, you might guess wrong as to how the market interprets it."
Twibell, then, likes areas such as biotechnology, which have held up fairly well during the Greece-inspired selling.
On the Standard & Poor's 500 , telecommunications services and utilities are the two sectors with the most exposure to U.S.-centric revenue. Utilities is the only sector that has gained for the index during the second quarter, while is the fourth-best of the 10 sectors.
On Fixed Income, Yield Is the Word
Investment-grade bonds are rapidly losing their appeal among strategists who believe that yields have fallen so much that they no longer hold allure.
So how does that fit into Greece?
The uncertainty in Europe and economic weakness in the U.S. likely will keep central banks in easing mode, thus holding rates low and pushing investors toward higher yields.
"Although credit spreads tend to fluctuate with the economic cycle, we do not expect the U.S. economic recovery to be especially strong," Capital Economics told clients. "Accordingly, we do not expect spreads to contract much from here, especially while the euro-zone crisis continues to brew."
The strategy, then, will be towards finding good returns in corporates and away from government debt, which is hovering around record lows.
Wells Fargo is recommending clients put together a diversified basket that includes "investment grade corporate bonds, high yield bonds, and emerging markets debt (which) offer more opportunities to investors with less potential downside risk than Treasurys given the current level of interest rates."
It added: "In fact, our own scenario analysis shows a globally diversified fixed income portfolio typically outperforms intermediate Treasurys in both rising and declining interest rate environments."
-By CNBC's Jeff Cox
