Greek Stock Market in A New Era
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Capital Link Invest In Greece Webinar Series
On Tuesday, June 25, 2024, the third installment of the “Capital Link Invest in Greece Webinar Series” took place, which aims to update the international community and raise the profile of Greece as a business and investment destination. The topic of this webinar was “Greek Stock Market in A New Era.”
After a long period of uncertainty and stagnation, the Athens Stock Exchange has been on the rise again since last year and is among the best performing stock markets in the world, ushering in a new era of optimism and solid financial perspectives. This webinar explored the profile, structure and valuation perspectives as well as potential catalysts that could eventually enhance the positive market trajectory.
Tuesday, June 25, 2024
The Greek Stock Market in a New Era
Brief Presentation & Roundtable Discussion
Moderator:
Mr. Trevor Yates , Investment Analyst - Global X ETFs – MSCI Greece ETF (NYSE Arca: GREK)
Panelists:
?Highlights:
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Link to view the webinar:
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The Rebirth of the Greek Market - The Greek Market Attractiveness
Mr. Trevor Yates of Global X ETFs asked panelists why Greece remains attractive and whether the recent rally marks just the beginning of a new era. Mr. Panagiotis Kladis from Alpha Finance discussed their strategy note from a year and a half ago, noting Greece's shift into a virtuous cycle. He highlighted stable political conditions, robust macroeconomic factors, and the rise of IPOs as key factors. Mr. Vangelis Karanikas from NBG Securities emphasized renewed investor confidence in Greek stocks and the economy, citing significant macroeconomic adjustments, fiscal credibility, and corporate reforms as drivers of a promising new era for Greek markets.
“The factors we identified remain in place: healthy macroeconomic conditions, a stable political environment, strong earnings, and valuations that have not yet fully reflected the market's prospects. We believe we are still in the early stages of this positive cycle,” Mr. ?Kladis stated.
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Political Stability and Market Outlook
Mr. Yates asked about the implications of the New Democracy party securing another term on the equity market outlook.
Mr. Alexandros Boulougouris from Euroxx Securities highlighted how the introduction of a stable government in 2019 has been pivotal in driving Greece’s market improvements. He emphasized the significance of sustained political stability in the country, contrasting it with other European countries experiencing instability. This stable, market-friendly environment has led to substantial improvements and is expected to continue boosting market prospects. Greece has consistently outperformed EU growth averages, with expectations for continued strong GDP growth in 2024 and 2025.
Mr. Kladis added that the government's increased voter support in recent elections and a clear mandate for reform, combined with a stable political landscape for the next three years, provide favorable conditions for ongoing economic reforms. Despite varying election outcomes, Greece's institutional resilience ensures stability, supporting long-term investor confidence.
?“Greece has consistently outperformed EU growth averages, and we expect Greek GDP to continue growing well above these averages in 2024 and 2025. This positive trend is expected to be reflected in the market gradually, ?Mr. Boulougouris stated.
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Greece's Economic Milestones: Debt Upgrade and Market Reclassification
Mr. Yates discussed Greece's recent sovereign debt rating upgrade to investment grade and the potential reclassification by MSCI to developed market status.
Mr. Karanikas from NBG Securities highlighted the significant impact of the investment grade upgrade after nearly 13 years. He emphasized its benefits for the economy, including lower government bond yields, reduced borrowing costs, and improved liquidity for banks and companies. The upgrade also makes Greek debt eligible for international bond indices, attracting global investors and institutional funds. Achieving investment grade is a prerequisite for MSCI to consider upgrading Greece, a move contingent on implementing market reforms to enhance liquidity and attractiveness.
Ms. Natasha Roumantzi of Piraeus Securities underscored the importance of ongoing reforms to bolster market depth and investor appeal, essential for Greece's potential upgrade to developed market status.
Mr. Boulougouris from Euroxx Securities noted the increasing number of placements and IPOs, suggesting a growing market investability and liquidity, which could support Greece's case for MSCI reclassification in the future.
Mr. Kladis from Alpha Finance acknowledged the debate surrounding Greece's market size relative to developed market criteria but expressed optimism about achieving advanced market status again with continued growth and market expansion.
?Mr. Karanikas also addressed concerns about potential index weight reductions post-upgrade but emphasized the long-term positive impact of increased investor interest.
“There is a concern that upgrading Greece to developed market status might reduce its weight in indices, potentially leading to net outflows. However, the long-term impact could turn more positive, and it is too early to estimate the exact net impact of inflows and outflows,” Mr. Vangelis Karanikas expressed.
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Assessing Valuations: Greek Market in Comparison to Peers
The discussion shifted to comparing the Greek market's valuations with its peers. Mr. ?Boulougouris from Euroxx Securities noted significant undervaluation in the banking sector, with Greek banks trading at lower price-to-book and P/E ratios (4 to 5 times earnings) compared to European counterparts (around 7.5 times earnings). He highlighted similar valuation disparities across other Greek sectors, noting strong dividend yields, particularly in banking and growing interest in sectors like energy.
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Mr. ?Kladis from Alpha Finance Investment Services pointed out that while Greek market valuations have rebounded from distress levels, they remain attractive, especially considering anticipated profitability. Sectors such as banks and energy offer compelling valuations, suggesting potential for further valuation growth.
Mr. ?Karanikas from NBG Securities discussed attractive valuations in the non-financial sector, particularly in industries like metallurgy and telecom (OTE), which historically trade at discounts to European peers across key metrics.
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Assessing the Valuation of Greek Banks: Discount or Premium Compared to EU Peers
Ms. Roumantzi from Piraeus Securities highlighted the Greek banking sector's current strengths: improved capitalization, profitability, and opportunities for growth through acquisitions and restructuring of non-performing loans. She argued that these factors warrant a premium valuation rather than a discount, especially with potential benefits from real estate sector exposure and declining interest rates.
Mr. Kladis of Alpha Finance Investment Services noted significant cost reductions and a return to credit growth, indicating a favorable credit cycle and stable future interest rates supportive of banking profitability.
Mr. Boulougouris from Euroxx Securities echoed the sentiment that Greek banks should not trade at a discount relative to European peers. He cited recent earnings growth sustainability and anticipated market recognition of these factors, predicting a potential shift towards premium valuations driven by political stability and a robust macroeconomic environment.
?“Banks have accumulated capital over the past couple of years, which they can use to grow their lending books, particularly for RRF-related projects, or to make acquisitions both in Greece and abroad,” Ms. Natasha Roumantzi?said.
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How Deep is the Greek Market? Evaluating Small & Mid-Cap Companies
The panel discussed the depth of the Greek market, focusing on small and mid-cap companies.
Ms. Natasha Roumantzi from Piraeus Securities noted opportunities for improvement, citing recent regulatory changes at the Athens Stock Exchange aimed at enhancing market depth and liquidity. She highlighted the emergence of Real Estate Investment Trusts (REITs) as a new sector, with recent IPOs and potential growth prospects driven by favorable real estate market conditions and anticipated interest rate reductions. Ms. Roumantzi also mentioned upcoming government incentives to stimulate business growth through mergers and acquisitions, which could benefit smaller companies seeking expansion opportunities.
“The Finance Ministry is planning to introduce tax and development incentives to encourage business growth through mergers and acquisitions. This should be quite positive for the market, particularly for smaller companies looking to grow through these initiatives." Ms. Natasha Roumantzi stated.
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Capital Markets Activity in Greece: Dual Listings and Greek Companies
The panel discussed dual listings and Greek companies listing outside the Athens Stock Exchange, highlighting conflicting trends.
Mr. Boulougouris from Euroxx Securities noted that while dual listings are logical for international companies seeking broader investor reach, smaller Greek firms often find greater liquidity locally unless they achieve significant size and index status abroad. He emphasized the importance of fostering new listings and increasing local market activity through placements.
Mr. Karanikas from NBG Securities agreed, citing examples like Metlen (formerly Mytilineos) pursuing dual listings to support international expansion. He suggested that while such moves may initially affect the local market, upcoming IPOs, including from large company subsidiaries, could mitigate this impact.
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Potential Risks to Investors
Mr. Kladis from Alpha Finance Investment Services highlighted that recent risks have been primarily external, with current conditions showing stability in the political and macroeconomic environment. He noted that while certain factors such as changes in tourism or the pace of funds absorption from the European Recovery and Resilience Facility (RRF) could influence Greece's trajectory, overall, the outlook remains positive. Mr. Kladis emphasized that unless global conditions change significantly, risks for Greece appear limited at present.
“Overall, my belief is that Greece is on a very positive trajectory. As long as global conditions are stable, the risks for Greece seem quite limited at the moment," Mr. Panagiotis Kladis noted.
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Attractiveness of Greece's Regulatory Framework for International Investment
Mr. Boulougouris from Euroxx Securities noted previous bureaucratic challenges but highlighted recent improvements in the process, with the government actively addressing issues. This has resulted in a significant increase in FDI, rising from a low of around 10% of GDP to 14%. Although still below pre-crisis levels of 20 to 25%, the trend indicates positive movement. Mr. Boulougouris acknowledged ongoing enhancements in Greece's ease of doing business, indicating progress towards optimal conditions.
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Debt to GDP Ratio in Greece – Evolution and Trends
The panel discussed the evolution and trends of Greece's debt-to-GDP ratio. Ms. Natasha Roumantzi from Piraeus Securities emphasized that the ratio's improvement hinges on GDP growth, especially leveraging the 90 billion euros in funding from the European Recovery and Resilience Facility (RRF) and other structural funds to stimulate economic growth.
Mr. Kladis from Alpha Finance Investment Services noted Greece's significant reduction in the debt-to-GDP ratio in recent years, ?one of the largest globally. He expressed optimism that with continued positive GDP growth and fiscal discipline, the ratio will continue to decline suggesting that it will not be a problem in the foreseeable future.
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