Emerging Greece: a matter of perception
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Here is news for Greeks deprived of their favourite TV station – you now live in an emerging market. As the government was shutting down the national broadcaster at midnight on Tuesday, index provider MSCI was shunting Greece out of developed-market status, for reasons of size and accessibility. The move is not entirely negative, but it shows how uncertain investment sentiment is towards Greece and adds context to the failure of a big privatisation in the past few days.
The Athens stock market has tumbled more than 80 per cent from its high point in January 2008 and by half since the country was bailed out in May 2010. Ireland’s stock market, in contrast, is 50 per cent higher since that country’s bailout in late 2010. That illustrates the sharp difference in investor perceptions towards the two countries and their chances of recovery.
Moreover, MSCI says the Athens stock market is not fit for purpose. Stock lending and short selling practices are not up to the standard of developed markets, for example. And it is too small. The capitalisation of the 60-stock ASE index on Wednesday was just €14bn, while Dublin’s 44-member ISEQ overall index was worth €54bn.
Greece lacks many characteristics that make emerging markets appeal to investors, such as strong growth and a queue of companies looking to list. Its market is shrinking – Coca-Cola Hellenic Bottling has moved its primary listing from Athens to London. Nor does Greece look inviting alongside South Korea, say.
Yet there should be advantages to its redesignation. Despite this week’s volatility in emerging markets, fund flows in search of returns in riskier markets are likely to remain strong. Greek assets are unattractive, as last week’s failure to privatise the DEPA gas company showed. Redesignating them is not going to change their fundamentals. But it might just change investor perceptions.
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