While Greece has outperformed the wider European market by 3% since a government reshuffle in mid-Oc...
While Greece has outperformed the wider European market by 3% since a government reshuffle in mid-October, Lambros Papadopoulos, analyst at SchroderSalamonSmithBarney, says the market will subsequently perform in line with the rest of Europe.
'We believe that even though top-down support for this outperformance is in place because of the government's more market friendly policies,' he says. 'Bottom-up support is fading on slower earnings growth, valuation grounds and the implications of the recent failed merger between National Bank of Greece and Alpha Bank.
'We therefore believe that Greece should perform in-line with the rest of Europe in 2002 and expect 8% upside to the FTSE-ASE 20 Index by the year-end.'
Papadopoulos says he expects Greek GDP growth at 3.5% for 2002, well ahead of the eurozone at 1.0%, driven by fixed investment and domestic demand. He adds the key challenges ahead for the country are pension reforms and improving its general competitiveness. The key political event in this year's calendar, says Papadopoulos, is the municipal elections in October. He says the onus is on the government to continue its market friendly policies, some of which may be socially unpopular and not to bow to election risk in the second half of 2002.
'We would stick with telecoms at the expense of banks in the first half of 2002,' he adds. 'This is despite the outperformance and narrowing of the valuation discount of Greek telecoms against their European peers in 2001. Within the sector, we now favour mobiles on relative valuation and newsflow grounds.
'We are cautious on the banks because we believe the management-related reasons behind the failed merger could deter much-needed consolidation in the sector or even international interest.'
Michael Barakos, investment analyst at JP Morgan Fleming Asset Management, says that there was a massive momentum bubble in Greece in 1999, which burst in 2000. Subsequently, the Greek market has underperformed over the last two years.
Barakos says: 'After two years of massively underperforming, valuations are now finally looking more realistic and earnings have stabilised. We see Greece as a defensive equity market because it is a closed economy.'
He adds that Greece is also a liquidity-driven market, and feels the key factor for it to do well is for fund flows to return back into equities. He adds that if international money funds came back into Greece, it will be a further powerful stimulus.
In Greece, banks and telecoms account for two-thirds of the index weighting. Barakos says that if investors call these sectors right they have gone a long way to calling the market.
He says: 'In 2002, on a price-to-book value, banks look attractive compared to other European banks, and in telecoms the valuations are also supportive. There is also positive newsflow in telecoms, which has lead to earnings upgrades in the sector.'
Barakos says that Greece is also benefiting from a public infrastructure programme, largely for the Olympic games, which take place in two years time. This infrastructure programme, which is a major boost for Greece's GDP, will be of most benefit to the construction and material companies.
Greek market has outperformed Europe.
Greek GDP growth expected to be 3.5%.
Valuations now looking more realistic in Greece.
Failed merger could deter others.
Government may bow to 'election risk'%.
GDP growth in eurozone.
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