Greek stocks soar as it sheds ‘Europe’s problem child’ label

Tourists are seen in front of the Academy of Athens building in Athens, Greece, Monday, May 22, 2023. Greek Prime Minister Kyriakos Mitsotakis defeated his opposition in Sunday’s national election, moving closer to another four-year term and pushing markets higher on the prospect that the prime minister’s investment-friendly policies will continue .

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Greek stocks rose sharply on Monday after a national election in which the ruling party picked up an unexpectedly large number of votes.

The NDP beat the second-ranked leftist Syriza party with 20.1 percent on 40.8 percent, still stay short Parliamentary majority.A new vote appears to be scheduled for June 25, with the NDP favorite in the election rules If the party gets more than 40% of the vote again, the party will gain 50 additional parliamentary seats.

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As the results became clear at the start of the week, stocks were Athens Composite Composite Index Stocks rose nearly 7 percent on Tuesday and edged higher despite the pessimism in global stock markets.

George Lagarias, chief economist at Mazars Wealth Management, said the strong daily move was partly due to Greek markets being “small and shallow” as traders priced in a potentially destabilizing three- to four-party coalition possibility.

Still, the index is up nearly 30% so far in 2023 and more than 40% over the past year, close to where it was about a decade ago – saying more about reforms in Greece and its economy, rather than Not a short-term bet, Lagarias added.

“The current government is considered business-friendly,” he said, with investors now anticipating that stability could come from a comfortable majority.

Economists and analysts told CNBC it has secured that image in a number of key ways since 2019 under Prime Minister Kyriakos Mitsotakis.

Political stability, reforms, Covid recovery fund behind Greek growth, analysts say

The first is to take major steps to improve Greece’s antiquated bureaucracy, such as taxation, and to speed up the modernization of personal and corporate systems.

Several economic achievements also attracted attention: Prepayment Greece’s IMF loan, high but falling debt-to-GDP ratio, continued employment growth, and higher deposits, consumption, and corporate income.

In 2022, the Greek economic growth rate will be 5.9%, which is much higher than the 3.5% growth rate of the euro zone, which is the 2.2% forecast According to Reuters, the Greek central bank will launch in 2023. The country’s 10-year bond yield hit a 24-year low against Italian bonds as of this week, suggesting lower risk.

Greece’s central bank is also eagerly awaiting its economy’s upgrade from junk to investment grade, Goldman Sachs explain It is on the “cusp” of reception.

Greek Finance Minister: We expect stronger 2023

Citing these developments, Kostas Kondakis, chief investment officer at Piraeus Asset Management, said “successful macro policy implementation and an impressive fiscal adjustment strategy” have captured the attention of international investors and reduced risk on Greek assets. cognition. He added that a key achievement of the current government was to achieve a budget surplus through tax increases, achieving a long-term goal of its predecessor.

Kondakis pointed out that in addition to the percentage increase, the average daily turnover of the stock market rose by 38.7% year-on-year, indicating the return of foreign investors.

“Keep in mind that equity valuations are still 30% below the Eurozone average, with higher growth prospects and healthy earnings and free cash flow setups. Greek companies have learned a lot after the decade-long crisis,” He said.

He added that the next step would be for the Athens Stock Exchange to upgrade from an emerging market to a developed market, and while it may not be imminent, reforms are needed, including improving free float and attracting more trading volume and larger companies.

No longer a “problem child”

Mazars’ George Lagarias also said the NDP had succeeded in changing perceptions of Greece abroad despite pandemic headwinds and in the form of a cost of living crisis and many living below the poverty line serious problem.

“Greece is no longer the problem child of Europe, quite the opposite. They managed to change the image of Greece from a problem child to a model for reform,” he said.

In addition to implementing domestic reforms, the government has also improved Greece’s geopolitical status, Lagarias said.This includes positioning itself as a staunch NATO member, while its neighbor Turkey clashed with group Regarding the accession of Finland and Sweden.

Lagarias added that strengthening diplomatic alliances could have a major economic impact in an era of “supportive friends” in which countries seek to redirect supply chains to their allies.

Paolo Pizzoli, senior economist at ING Bank, said that if Mitsotakis is re-elected, he is likely to continue with a similar agenda, “using the long-term reopening effect to drive growth into 2022.” Political stability could also have a positive impact on Greece’s budget, especially as the pandemic and energy support programs wind down.

Tourism will be a short-term growth engine, but high inflation Pizzoli warned that rising real disposable income would hit private consumption, while higher interest rates could affect fixed capital formation.

Lower bond yields and stock market gains “will only prove sustainable if Greek economic growth does not disappoint,” he said.

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