A world-beating rally this year may be more than just a rebound for Greek stocks, with investors betting an improving economic backdrop will drive further gains. The country’s ASE Index has soared 26%, beating 93 other equity benchmarks tracked by Bloomberg, as traders embrace the strongest economic expansion since 2007 and bet on political reform. Investors are pouring money into the Mediterranean nation’s equities, and market players including Jefferies LLC, Bienville Capital Management and Piraeus Securities SA say there are more returns to be reaped. “We believe the rally in Greek equities hasn’t really even begun,” said Cullen Thompson, a New-York based chief investment officer at Bienville Capital Management LLC, which owns the country’s stocks. “Whereas much of the world has experienced a decade of growth and liquidity-driven asset price appreciation, after nearly 10 years of depression, Greece’s cycle is only now beginning. Despite this rapidly improving backdrop, remarkably, valuations of Greek equities are some of the lowest in the world.” Investors are pouring money into the top exchange-traded fund focused on Greek equities at the fastest pace in 15 months. This is a sharp contrast to the rest of Europe – the region’s equity funds have been bleeding cash almost non-stop for the past year as shorting European stocks has become the world’s most popular trade. Despite its rebound from last year’s slump, the ASE Index remains well below its pre-financial crisis highs and its shares trade at a discount of about 40% relative to its 2014 high on a forward price-to-earnings basis. “Unjustifiably low valuations provided good entry opportunity in 2019, but it took investors some time to grasp that economic reality is improving,” Tim Umberger, deputy head of Eastern Europe at East Capital, said in e-mailed comments. “With further improvement in the economy that will ultimately translate into higher earnings, the rally could have further legs going forward.” Greek stocks have been buoyed by the optimism that the investor-friendly New Democracy opposition party could come to power in 2019, according to Dimitri Dardanis, head of institutional equities at Piraeus Securities in Athens. If the government changes and has a majority in the Parliament while growth remains strong, stocks could rise as much as 10% before year-end, he said. “It would take an external shock like a hung parliament or a global recession to make the market pull back,” Dardanis said by phone. Still, the small size of the market – shares on the ASE are valued at just about $52bn – has kept many major investors, including Brooks Macdonald, away from Greek stocks. And while the market may be a nice short-term trade, Gerald Moser, chief market strategist at Barclays Private Bank & Overseas Services, says the nation’s pace of economic recovery may not be sustainable and elections may reignite political instability. Plagued by the global and European debt crises, the ASE Index has lost 81% over the past decade compared to a gain of 21% for the Stoxx Europe 600 Index, as of Thursday’s close. A rally in Greek bonds, which has been outpacing gains in euro-area debt, has been boosting banking and property stocks. Following Moody’s Investors Service’s upgrade of Greece’s sovereign credit, a ratings increase by S&P Global Ratings can’t be ruled out and may fuel further gains in equities, said Aneeka Gupta, an associate director of research at WisdomTree in London. “After stumbling last year, Greek equities have found a renewed lease of life as sentiment towards Europe improves,” Jefferies strategists led by Sean Darby said in a note. “We remain bullish on Greek stocks within our global asset allocation.”
