The transformation of Greece from an emerging to a developed market is not being accompanied by posi...
The transformation of Greece from an emerging to a developed market is not being accompanied by positive prospects for the stock market.
It remains out of favour with Europe and emerging market investors and has fallen sharply in the first part of the year.
The Athens Stock Exchange (ASE) Composite Index returned a negative 18.5% in dollar terms over the first quarter of 2000. The FTSE/ASE 40 Index fell 35.5%, while the composite index shed 50.8% of its value.
However, the blue chips have outperformed the local market over the same period with the FTSE/ASE 20 index falling 12.2% in dollar terms. MSCI recently announced the market status of Greece and its indices is under review and it is likely to be included in the MSCI developed markets index series from late November.
According to Salomon Smith Barney, the reclassification of Greece as a developed country will allow this market to be included in the MSCI World, EAFE (Europe, Asia, and Far East), Europe and EU indices. It is likely that Greece would have a 0.6% weighting in the EAFE Index.
Although the changes to the MSCI will be a significant milestone for the country, the FT S&P reclassified Greece into continental European markets midway through last year, so many European fund managers, like Adrian Darley at Gartmore, have already invested in Greece.
Darley says: "Although currently underweight in Greece, we have been looking at a few stocks in more detail. Examples of this include the telecom OTE, the bank Alpha Credit and Stet Hellas, the mobile phone operator."
He says after a significant correction in the market these stocks are looking less expensive and Gartmore will continue to watch their valuations and growth prospects closely.
Dariusz Sliwinski, emerging markets fund manager at Martin Currie, says it is likely that emerging markets fund managers will sell out of their holdings in Greece, because this market will not longer fit their mandate. Greece is unlikely to be seen as a significant market by continental European fund managers because of its relatively small size, Sliwinski says.
One of the major concerns with Greece is its excessive stock valuations, despite strong falls this year, which have been driven up by strong domestic investment and the pricing in of Greece's planned joining of the euro in January 2001.
Another negative with this market is the lack of liquidity, according to Darley. Even some of the largest stocks are not highly traded.
Darley says: "There is a concern that once Greece joins the euro, domestic investors could sell out of local equities to buy into international stocks."
Martin Currie had been negative on Greece since last April, holding only 5% in this market, versus 18% in the MSCI EMEA (Europe, Middle East and Africa) index.
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