“Taurus” for Greece and Greek shares

By | May 8, 2023

His Eleftherias Kourtalis

Athens was visited a few days ago by executives from Global X, the international investment company in the ETF sector, for meetings with Greek government officials, institutions and managers of Greek banks and listed companies. As he himself points out, “We left with an optimistic short- and long-term view of the Greek market.”

Based on the appointments he had in the Greek capital, he expects an appreciation of Greek assets based on those catalysts in the short term. (elections, strong tourist season, new round of capital spending) as well as in the medium term (continuation of economic policies, possible upgrade of Greece to investment grade and possible upgrade of the Greek stock market to developed markets from emerging markets). In addition to these powerful “weapons”, Greek stock valuations, he says, are trading below their 5-year historical averages. MSCI Greece is trading at around 6x estimated earnings, around 0.70x book value and a 7% dividend yield, compared to around 13x, 1.5x and 3.1% for the MSCI Emerging Index Markets wider.

In particular, as reported by Global X, which manages the Greek ETF (exchange-traded fund) GREK, After years of volatility, Greek stocks have shown resilience in 2022 and appear well positioned to perform very well in the remainder of 2023.

Unlike many other countries, Greece seems to have its foot on the… accelerator, for the recovery of tourism, years of lack of investment and the Recovery Fund of the European Union. Politics is likely to play a key role this year given the upcoming elections. A New Democracy victory could stimulate the investment climate and possibly lead to an upgrade of the country’s credit rating to investment grade.

From volatility to outperformance in 2022

Once considered volatile, Greek stocks have shown resilience in a difficult 2022, with the MSCI All Greece Select 25/50 Index returning 3.53%, versus -19.81% for the MSCI Emerging Markets IMI Index and a drop of 18.13% for the S&P 500 Notes, Global X.

GDP exceeded the eurozone average by more than 300 basis points last year and is expected to continue to exceed it. GDP revisions were also positive, with government officials highlighting in meetings that economic growth has consistently exceeded expectations over the past three years: unemployment fell to 12%, the lowest since 2010 and well below levels 2019, and the country can boast the largest aggressive fiscal consolidation in the EU since the outbreak of the pandemic. Furthermore, the debt/GDP ratio is declining and is approaching 170%.

Looking ahead, the combination of the tourism sector recovery, Recovery Fund inflows and the prospect of a market-friendly election result bode well for Greek asset prices, emphasizes Global X.

A new cycle of investment and recovery in tourism

While many countries need to curb growth in the face of inflation, Greece is entering a cycle of capital spending helped by years of underinvestment and Recovery Fund funds flowing into the economy, Global X notes, with Greece expecting more than 30 billion euros (around 15% of GDP) by 2025, while it has already received about 10 billion euros and the government has already approved projects for more than 3 billion euros.

The banks that Global X met with confirmed that companies in all sectors have been active in applying for loans (partly subsidized loans and partly equity) to finance projects. Most of these projects focus on digitization, energy efficiency, the transition to green energy, tourism and exports. The bottom line is that while the rest of the world is seeing projects delayed due to higher interest rates and slower growth, Greece seems to be stepping on the gas, he notes.

Furthermore, tourism accounts for around 20% of Greek GDP, and Greek officials expect a return to 2019 levels this year, due to a strong US dollar and significant pent-up demand coming from China, which has “opened up” again. . Global X notes that he was in Athens in the middle of the week, out of season, and saw at least seven daily flights from the US.

The elections

According to recent opinion polls, New Democracy could lead a coalition government, but if it extends its leadership it could also achieve self-sufficiency, the chamber notes. A coalition with the PASOK party would probably come.

“We expect New Democracy to deliver positive news in the coming weeks to boost their poll numbers,” as Global X notes.

Unemployment hovered around 20% under SYRIZA, meaning there are few positive memories to turn voters back on. In contrast, New Democracy not only reduced unemployment, but also increased the minimum wage by 20% starting in 2019. This resonates strongly with voters. A victory for New Democracy and the continuation of its economic policies could be a key factor for a possible upgrade of Greece to investment grade, as he estimates.

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