Sunnier Forecast for Greek Stocks -- Barrons.com
BY CRAIG MELLOW | DOW JONES & COMPANY, INC. - 12/15/2017
Emerging Markets
Searching for some happy holiday news? Have a look at Greece. No, seriously. The European Union's chronic financial patient has seen three straight quarters of economic growth, the first time that has happened since 2006. Unemployment has shrunk to about 20%, from a peak near 28%. The budget is in surplus, not counting debt payments. And Athens may at last get off fiscal life support when its third EU--International Monetary Fund bailout package comes to an end next August.
These improvements have already made bondholders a killing. The yield on benchmark 10-year Greek sovereign paper has fallen from roughly 8% to 5% since February. (Bond prices and yields move in the opposite direction.) Greek stocks could come next. "We believe the bailout program will ultimately end with a successful conclusion and higher equity valuations, " says Christopher Colunga, portfolio manager at BlackRock's Emerging Europe Trust.
Those valuations have room to rise. The Global X MSCI Greece exchange-traded fund is worth half what it was five years ago, while European stocks have gained a third. The banks that dominate the index, such as Alpha Bank (ALPHA.Greece) and National Bank of Greece (NBGIF) , are trading at about 30% of book value, compared with 100% for European peers, says Nikos Koskoletos, head of research at Eurobank Equities in Athens.
THERE IS PLENTY OF REASON FOR CAUTION, too, starting with those banks, whose nonperforming-loan ratios are stuck near a staggering 50%. They need massive selloffs of distressed collateral, but these have largely been stymied by left- wing demonstrators who disrupt any foreclosure auctions. The notaries who oversee those procedures have been on strike most of this year, fearing for their own safety. Prime Minister Alexis Tsipras and his Syriza Party, leftists themselves by heritage, have promised to restore order but haven't yet, Koskoletos says.
Other oddities riddle the Greek economy, says Nicholas Economides, a Greek-born professor at New York University'sStern School of Business. Most civil servants have never had a job evaluation because they go on strike if threatened with one. Archaeology authorities are holding up an $8 billionredevelopment plan for Athens' old airport to protect buried antiquities. And so on. "Structural reform laws are passed, but the government doesn't like them, so it doesn't implement them," Economides says.
The stock market remains thin and easily spooked. Greek equities climbed by 30% this spring when the country passed a periodic EU financial review. They lost most of that ground in September after an IMF official said the fund would demand a new "asset quality review" at the big banks.
Still, the trends are hopeful. Tsipras has complied with the official creditors' fiscal demands, after rising to power by denouncing them. Polls indicate that Syriza will yield power, probably next year, to the center-right New Democracy Party -- whose top priority will be "creating jobs in the private sector through a business-friendly environment," party leader Kyriakos Mitsotakis said recently.
A milestone before that will be bank stress tests, which the European Central Bank has brought forward to May so any capital deficiencies can be filled from existing bailout funds. (The rest of Europe gets its results in November.)
While a lot can go wrong with this picture, a little speculation on the Athens bourse seems reasonable. "If someone is willing to spend $16,000 for a Bitcoin, I can't understand why they wouldn't take a shot at Greece," Koskoletos says.
CRAIG MELLOW is a free-lance reporter based in Savannah, Ga.
Email: editors@barrons.com
(END) Dow Jones Newswires
12-15-17 2256ET
Copyright (c) 2017 Dow Jones & Company, Inc.
