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Why the Greek selloff is exaggerated

As Greek stocks face their largest weekly drop in nearly three decades ahead of elections this month, some analysts say the rout is blown way out of proportion.

"Greece has come a long way, they have done structural reforms, and they just need to resolve the last piece of the puzzle. The risks are serious but it's an over-exaggeration. The country has done structural reforms and they will be able to get this last piece done," Naeem Aslam, chief market analyst at AvaTrade, told CNBC this week.

On Thursday, the Athens benchmark index slumped 7 percent, adding to its 13 percent crash on Tuesday, the worst loss since 1987, after Prime Minister Antonis Samaras called an early vote to elect a new president in December, instead of March.

Read MoreGreek stocks plunge further as elections loom

The worry is that Samaras' presidential nominee, Stavros Dimas, will fail to garner the minimum number of votes needed. Should that occur, parliamentary elections will be held and opinion polls indicate that the leftist Syrzia party, a vocal critic of the country's bailout program, is sure to win.

"The market reaction to this new level of political uncertainty is a big overreaction. We already had uncertainty in the sense that we didn't know if we could elect the President of the Republic [in March] and thus, have or not have snap elections, but now this has come down the road," said Kostas Botopoulos, chairman at Hellenic Capital Market Commission.

Greek Prime Minister Antonis Samaras addresses his party's parliamentary group on December 11, 2014.
LOUISA GOULIAMAKI | AFP| Getty Images
Greek Prime Minister Antonis Samaras addresses his party's parliamentary group on December 11, 2014.

Botopoulos is referring to the bleak outlook for the ruling New Democracy party even before Samaras' shock announcement. If March elections took place as originally scheduled, the successor to President, Karolos Papoulias, would need to win three-fifths of the country's 300-seat parliament. However, the government only holds around 153 seats, which means it would require the support of Syriza lawmakers, who have publicly refused to support any candidate.

Read MoreGreece can't afford another crisis: Former PM

Crisis remains contained

Analysts are primarily concerned about a repeat of the 2010 crisis, which saw the selloff in Greece spill over into the bonds of southern Europe's other peripheral nations.

"Greece in itself should be a non-event for the rest of us [i.e. global markets], but there is more selling in the peripheral debt of Italy, Spain and Portugal," noted Peter Boockvar, chief market analyst at The Lindsay Group, in a note on Wednesday.

Yields on benchmark 10-year Greek debt soared over 9 percent to a one-year high on Thursday, but hopes of sovereign debt purchases by the European Central Bank are expected to cap yields on the debt of other European peripheral nations, experts say.

Read MoreGreek stocks crash,yields spike on political strife

Despite spiking on Wednesday, the yields on the Spanish, Portuguese and Irish 10-year notes remain well below the levels seen during the euro zone debt crisis.

A buying opportunity?

AvaTrade's Aslam believes there's a silver lining to the Greek political instability, calling it an "opportunity."

"The situation isn't as dire as it was back in 2010. If the same government does come back, this will be an opportunity. Going into next year, there's going to be a lot of money coming into Greece, which we're going to be buying into the stock market and driving it," he said.