Amid the bailout suspense, the Athens stock index chugs higher…
Though Societe Generale’s equity quant analysts took a pop at it on Monday:
If the definition of a bull market is a gain of 20% or more does the 45% rise in the Greek equity market during the last few weeks constitute a bubble? We’re somewhat perplexed that amongst the great fanfare of rebounding equity markets and a return to “stock-picking” few commentators seem to be extolling the fundamental attractiveness of Greek equities as they might say Netflix (up 75% year to date), German Autos (+31% this year) or Industrial Metals (18%). Perhaps because this is not actually a return to fundamental investing, but simply a big fat high beta bounce entirely consistent with a market being force-fed cheap money.
Well there have been one or two fundamental cases for Greek equities!
Strange ones though.
Usually starting from the basis that Greece’s stock market really has been hollowed out since 2010. It started 2012 with a market cap of less than €25bn. Comparing that to Greece’s GDP, this is like a frontier market valuation. An invitation to look for a bottom and make a contrarian stand… or an apt response to years of depression, debt crisis and misery for ordinary Greeks. Quite simply when foreign corps are sweeping cash out of the country every night, Greek corps can’t get trade credits, liquidity etc, fundamentals are tricky. This is the thing here we find. Though the fundamentals do come into play, they’re extremely binary.
In that sense it’s also worth noting the huge, though also hugely volatile, gains in Greek bank stocks since January. In part, this is because of a quirk of the bailout standoff. Despite the circa €30bn recapitalisation to absorb losses on writing down Greek sovereign debt, it’s been fairly clear that the government would take its potential majority stakes in banks with restricted voting rights. Greek banks don’t undergo nationalisation, Greek bank investors are protected by the Troika’s lack of trust in the Greek state. Bubble? Maybe. You are trading on politicians’ whims.
Plus the other factor is, well, there are quirks but this is a bet against Greece going out of the euro, and Greek depositors taking flight. Maybe the Greek government is going to do anything to stop losing its entire banking system in that event, but it won’t save your equity. You will probably even struggle to access your investment, under (rushed etc) capital controls. Asset values would liquidate overnight.
And yet, those asset values are up 45 per cent.
Whether or not it meets the definition of a bubble, it all seems very zero-sum.
Related links:
A capital way to defuse Greece’s timebomb - John Dizard, FTfm
Weird Greece-Egypt stock correlation – BI
Europe’s banks are among world’s riskier assets – Short View