Value investing has had a fair run in Greece’s stock market lately. Take it from the guy who wrote the book on it: Seth Klarman would own a tenth of Greek bank Piraeus, if warrants were exercised. The Athens index is up by a quarter in the year to date. Other, more passive investors are waiting until Greece falls into MSCI’s Emerging Index after November 27.
Greece’s long-term growth after the scars of the crisis does not scream “emerging”. Bank of America Merrill Lynch forecasts a growth rate barely above 1 per cent without structural reform. But that looks hard to carry out. Greece’s hourly labour costs remain high – double Hungary’s in 2012 – and each wage earner already supports two or more dependants, twice Germany’s level, Renaissance Capital estimates. Even the IMF’s optimistic forecast for 3 per cent average growth in the latter part of this decade is half that for Turkey.
However, unlike Turkey, or other emerging markets that were hit by this year’s fear of Federal Reserve tapering, Greece now has a current account surplus. Contracting at the slowest pace in three years, its economy is at the bottom of its cycle. Many emerging markets could be at the top. But that position has been bought at a high cost. Greece is still deep in sovereign debt, although not so dependent on creditor cash now that it runs a budget surplus.
Corporate balance sheets, forced into deleveraging, also look good. Hellenic Telecom, for example, has cut net debt to 1 times earnings before interest, tax, depreciation and amortisation from 3 times in 2011.
Greece will get more attention as an emerging market than it has done as a developed market. Its weighting in the MSCI index will be larger than Hungary’s but even after the rally (and Mr Klarman), the top five banks’ combined market capitalisation is no higher than in 2004. There will be worse places to be when tapering finally comes.
Email the Lex team in confidence at firstname.lastname@example.org