Greek Stocks Are Among World’s Best Performers Ahead of Election

Ksenia Galouchko and Sotiris Nikas
·3 min read

(Bloomberg) -- Greek stocks are posting some of the world’s biggest gains in this year’s run-up to Sunday’s election as investors bet the nation can regain its investment-grade status on fiscal discipline and economic resilience.

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The Athens Stock Exchange General Index is up 22% in 2023, the sixth-best out of 92 benchmarks tracked by Bloomberg and ahead of most European markets. The biggest boost has come from banks including Piraeus Financial Holdings SA and National Bank of Greece SA, and consumer-facing companies such as Jumbo SA and OPAP SA.

The election is likely to provide the latest catalyst for markets after ratings agencies said a potential upgrade to investment-grade status will depend on the next government maintaining the pace of structural reforms and fiscal discipline. The vote may lead to a second ballot, fueling volatility, but the stock rally so far has been supported by a robust economic recovery and greater financial sector stability than during previous crises.

“Here’s what has changed: Greece is slowly clawing back the investment-grade status,” George Lagarias, chief economist at Mazars, said by phone. “You have something that was devalued for 10 years, subsequently crushed for another 12, and now it’s flowing back to investment grade, which means it might be back on investors’ monitors.”

The vote on May 21 will use a fully proportional representation system that makes it almost impossible for a one-party government to emerge, though some polls suggest that it would be possible for Prime Minister Kyriako Mitsotakis to form a coalition with socialist Pasok party, which is seen finishing third.

Lagarias said the risk of a runoff vote is well priced in, and investors are focusing on Greece’s improving economy and an exit from junk status for its credit.

Barclays Plc strategists don’t expect the new government to undo the reforms seen since 2015 and say the rating upgrade is likely within the next year. Greece is also a key beneficiary of fiscal transfers within the euro area, which should continue to boost domestic and foreign investment if the government sticks to reforms, according to them.

Greek Election Is Last Barrier in 13-Year Investment-Grade Quest

“A new megacycle would likely provide a further boost to Greek equities, which have had a strong run in light of positive EPS revisions,” Barclays strategists including Emmanuel Cau wrote in a note this week. “A continuation of structural reforms, post-election, could bode well for the market, given its bias to financials and domestic cyclicals.”

Bank Boost

The FTSE/Athex Banks Index has nearly doubled since July lows, compared with about 45% for the broader gauge, as the country’s four leading banks made progress in reducing bad loans and benefited from central-bank rate hikes. Some financial institutions are even in talks with the European Central Bank over the possibility of resuming dividends.

In a further stamp of investor approval, Greek stocks have clawed back declines spurred amid the banking turmoil in March, a far cry from the sharp tumble they took in the aftermath of the global financial crisis.

Despite recent gains, however, the country’s equities remain significantly below longer-term peaks, and valuations don’t look demanding. The ASE trades at eight times its 12-month forward earnings, compared with a multiple of about 13 for the Stoxx Europe 600 Index.

“The ASE has been trading at modest relative multiples and is riding the global wave of value-style outperformance while at the same time the sovereign upgrade to investment grade is in sight,” said Thanassis Drogossis, head of investment banking at Pantelakis Securities SA. Better economic and earnings growth are boosting the attraction of Greek stocks, he adds.

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