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Greece has defied the doomsayers. After the 2004 Olympics, which cost a record €7bn, it had virtually run out of money, says Helena Smith in The Observer. But two years on, the outlook has improved markedly. As a result of the centre-right government’s careful control of the state budget, underperforming public firms have been closed and spending and wage increases restrained. The budget deficit as a proportion of GDP is set to fall under the 3% limit stipulated by the eurozone growth and stability pact this year, while GDP growth, which hit an annual rate of 4.1% in the first quarter – double the eurozone average – should total 3.8% in both 2006 and 2007. Meanwhile, next year’s reduction in corporation tax to 25% bodes well for corporate earnings.
Given the economy’s increasingly solid fundamentals, a drop of more than 15% in the benchmark ASE Index since global jitters began in early May looks overdone; investors appear unfairly to have treated Greece as an emerging market during the flight from risk. Greek stocks should make a gradual recovery given the economic backdrop and the relatively cheap rating, Andreas Kontogouris of P&K, Greece’s biggest stock broker, told Handelsblatt. He notes that the index is currently on less than 15 times earnings, when it has typically sold for 17 times since the late 1990s.
The market also offers exposure to the fast-growing Balkans; Greek banks, for instance, are among the dominant players in the region. P&K likes National Bank (ETE, €28 on the Athens Stock Exchange) – also deemed a buy by Dresdner Kleinwort Wasserstein, whose target price is 38% above current levels – EFG Eurobank (EUROB, €21) and Coca-Cola Hellenic Bottling (EEEK, €24), which holds Coca-Cola franchises in 27 countries.
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Andrew Van Sickle
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