FOLLOWING weeks of turmoil, it looks like the worst of Greece’s debt problems are over, at least for the time being. Talk of a rescue plan and encouraging news on the budget deficit are restoring some confidence. Could now be the time to invest in Greece?
The Greek stock market has dropped 36 per cent from its October 2009 peak, compared to the MSCI World index, down 5 per cent. There has been panic selling of Greek stocks, as investors feared a sovereign default. But, where there is panic, there are usually buying opportunities.
Analysis by Saxo Bank has found that cyclically adjusted price-to-earnings ratios using average earnings over a 10-year period show that some Greek companies are currently looking very cheap relative to their expected earnings. Hellenic Telecommunications, National Bank of Greece, Alpha Bank and Public Power Corp look particularly good value.
Investing in Greece is not for the faint hearted. However, the French and German governments are said to be considering a €30bn bail out plan. If this goes ahead, it would most likely consist of the sale of Greek debt to French and German publicly owned banks and other private entities. This could help calm investor fears about a Greek sovereign debt default, says Ben May, European economist for Capital Investments. Having €20bn of debt maturing between April and May, the bailout “would reduce the risk of a short-term funding crisis emerging for the Greek government”.
This should cheer equity investors, as it would make it less likely that Greece will default on its sovereign debt obligations. May also points out that government public finance data was positive for January. The central government ran a budget surplus of €0.6bn in January, compared to a deficit of €1.6bn a year earlier. Revenues collected by the government also increased by 16.5 per cent, and expenditure fell by 10.8 per cent. This data could convince the French and German governments to help Greece.
A credible fiscal plan would also boost investor confidence. There are signs that the government’s opposition to further fiscal tightening is abating, and it is currently in discussions to make further savings of €2.5bn this year, says May. This could help the government shift the €5bn of 10-year bonds it is looking to sell in the next couple of weeks.
CFD investors can get a broad based exposure to an upswing in Greece’s fortunes by taking a long position on the Athens Stock Exchange, which includes some of the largest companies in Greece. Traders can do this either through a broker or with providers such as Saxo Capital Markets or Twowaymarkets.
For the brave, now is a good time to take the plunge and invest for the near to medium term. As long as the Greek government keeps on the right fiscal track, and the bailout that is planned does actually get the green light, then there is money to be made.