Greece is poised to leave the emerging markets index and enter the developed market indices in Janua...
Greece is poised to leave the emerging markets index and enter the developed market indices in January 2001.
Raj Shant, director of European equities at Credit Suisse Asset Management, believes like Spain and Italy in 1997 and 1998, the Greek market had its turn at good performance in 1999.
He says: "As higher inflation countries prepare to join the euro, they benefit from 'convergence play' and 'disinflation' where inflation goes down and interest rates stabilise at lower levels."
According to Joanne Irvine, fund manager at Aberdeen Asset Management, with the announcement of Emu entry the Greek market rallied in early 1999, peaking in the third quarter with the bubble bursting in the fourth quarter.
Irvine agrees that while it was considered difficult for Greece to meet the Maastricht criteria the government has done an exceptional job, reining in the budget and achieving accelerating growth.
The key economic development will be the lower interest rates the eurozone will bring the region in January 2001.
The market has recovered from its downturn. However, Irvine says the market has still significantly underperformed this year. Consequently, the Aberdeen Frontier markets fund has an aggressive underweight position in Greece, having a weighting of 8.5% compared to an index weighting of 19%.
Shant says that one of the key risks for Greece in being re-classified as a developed market is that it could follow the path of Ireland where entry to Emu in 1999 saw domestic investors diversifying their portfolios but the Irish equity market did not feature prominently for international investors.
Irvine says: "The indications are that Greece will be a small part of the developed European market, less than 1% and that it will not be that significant for European fund managers."
Irvine forecasts that there will be some buying by fund managers of one or two blue chip stocks for companies to achieve their index rating. She points out that valuations have not come down enough to make the market interesting. She believes that telecoms and banks, which, though not especially cheap are not very expensive, will be attractive to fund managers. These sectors form a large part of the Greek index and European fund managers will look to large cap stocks and the main sectors, she adds.
"Mid cap stocks in Greece are expensive, they trade at very high multiples compared to blue chip stocks and European small and mid cap stocks."
Irvine says that Greek telecoms are trading at very attractive levels compared to their European counterparts. Financials are less cheap but have the potential for growth and should see significant return on equity, which should be sustainable in the medium term.
At the moment, the Aberdeen Frontier markets fund has holdings in two of Greece's largest banks; Alpha Credit Bank and the National Bank of Greece. "The National Bank of Greece is benefiting from four years of restructuring which is close to completion. It is very strong in retail banking and has the highest weighting of the sector in the MSCI index. "
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Via The Exchange
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