Tourists in front of the Athens Academy building in Athens, Greece, on Monday, May 22, 2023. Greek Prime Minister Kyriakos Mitsotakis defeated the opposition in Sunday’s national elections, advancing a step closer to receiving another four-year term and lift the market above the prospect that the prime minister’s investment-friendly policies will continue.
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Greek stocks rallied on Monday after national elections saw the ruling party win an unexpectedly large share of the vote.
The New Democrats won 40.8%, overtaking the second left Syriza party with 20.1%, still keep it short of a parliamentary majority. A new vote looks set for June 25, with New Democracy being the favorites to win under election law that would see the party win an additional 50 seats in parliament, should it again gain more than 40% of the vote.
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When results became apparent at the beginning of the week, stocks were measured on General composite index of Athens rose nearly 7% and rose slightly on Tuesday, despite pessimism in global stock markets.
George Lagarias, chief economist at Mazars Wealth Management, said the steep daily volatility was partly due to the “small and shallow” Greek market, and traders were already pricing in the potential for a three to four alliance. party can create instability.
However, the index is up almost 30% in 2023 so far and over 40% over the past year, trading close to where it was about 10 years ago – which says a lot about reform for Greece and the economy. the country’s economy rather than short-term bets, Lagarias added.
“The incumbent government is considered business-friendly,” he said, and investors now expect stability that can come from a comfortable majority.
Economists and analysts told CNBC there are a few key ways to secure that image during Prime Minister Kyriakos Mitsotakis’ tenure since 2019.
The first is to take important steps to improve ancient Greece’s bureaucratic systems in areas such as taxation, and to speed up and modernize systems for individuals and businesses.
Some economic successes have also attracted attention: early repayment Greece’s IMF loans, a high but declining debt-to-GDP ratio, sustained employment gains and higher deposits, consumption and corporate revenues.
Greece’s economic growth is 5.9% in 2022, much higher than the 3.5% rate in the euro area and is forecast at 2.2% by the central bank of Greece in 2023, according to Reuters. As of this week, the country’s 10-year bond yields hit a 24-year low relative to Italy’s, suggesting lower risk.
The Greek central bank is also eagerly awaiting a hopeful upgrade in their economy from junk to investment grade, which Goldman Sachs speak it’s “on top” of receiving.
Kostas Kondakis, chief investment officer at Piraeus Asset Management, citing these developments, said the “successful implementation of macro policy with an impressive fiscal adjustment strategy” has attracted the attention of investors. international investment and reduce perceived risk to Greek assets. He added that an important feat of the current government is to achieve a budget surplus through increased revenue, fulfilling the long-term goal of its predecessors.
Kondakis noted that, along with the percentage increase, the average daily trading volume in the stock market increased by 38.7% year-on-year, indicating a return of foreign investors. .
“Remember that stock valuations are still 30% below the Eurozone average, with higher growth prospects, good earnings and a free cash flow establishment. Greek companies have learned quite a bit. after a decade-long crisis,” he said.
The next step, he added, though likely not imminent, would be to upgrade the Athens Stock Exchange from Emerging Development – although it needs reforms, including floating rates. greater freedom and to attract larger volumes and larger companies.
The ‘problem child’ is no more
Mazars’ George Lagarias also says that New Democracy has succeeded in changing perceptions of Greece abroad, despite the headwinds of the pandemic and with serious problems persisting in the form of a crisis. cost of living and many people live below the poverty line.
“Greece is no longer the problem child of Europe, just the opposite,” he said. They managed to change the image of Greece from a problem child to a model of reform.”
Along with the enactment of domestic reforms, Lagarias said, the government has enhanced Greece’s geopolitical standing. That includes positioning itself as a loyal member of NATO, while neighboring Türkiye has conflict with block on the accession of Finland and Sweden.
Forging diplomatic alliances, Lagarias adds, can have a significant economic impact during ‘friends in favor’ times, when countries are looking to shift supply chains to their allies.
Paolo Pizzoli, senior economist at ING Bank, said that if re-election is secured, Mitsotakis is likely to continue a similar agenda, “taking advantage of the protracted reopening effect that has fueled growth”. growth in 2022.” Political stability could also be a positive for Greece’s budget, especially as pandemic and energy aid packages fade.
Tourism will serve as a short-term growth engine, but the impact of high inflation Pizzoli warned that real disposable income would affect private consumption and higher interest rates could affect fixed capital formation.
He said lower bond yields and a rally in the stock market “will only be sustainable if Greece’s economic growth does not disappoint”.
