Should you start buying Greek stocks ?
The deep drop of the Greek market according to our opinion should be considered as an opportunity to start buying. This means you should start accumulating stocks for the next 2-3 years. Through the accumulating program you can have a reasonable average price in the portfolio of many Greek stocks, especially the bank stocks. However the total exposition in the Greek market should never be more than 10% of the entire portfolio.
Greece is about to default but this doesn’t means its economy is about to default at the same way. Greece has always a last solution that is the Exit from the European union. This event could have a strong impact the first year after the Exit but it could be the solution for the long time. The Athens Stock Exchange’s prices will be again quoted in the new Drachma. And guess what will happen with the stock prices? They will rise up sharply as the expectations for the inflation will be high and the currency will start to depreciate. In any case the market will try to price the inflation in the stocks’ value. Once the economy will start growing, the banking system will be again safe and the inflation will be stabilized, we can only expect the Greek stocks to climb.
As this is the worsen scenario that can happen according to us, we consider the actual prices, especially the banks prices, a strong opportunity to buy with a medium term target. But if you can hold the stocks for much longer you can have an excellent absolute return. After 8 years of depression in the Greek economy and after all the negotiations with the creditors, we argue that the final solution for Greece can’t be so far. If Greece will be in the Euro-zone probably we will continue to see prices depressed for some more time but in any case they can’t continue to stay at these levels technically and fundamentally.
Actually the P/E ratio of the Greek market is the lowest among all the developed countries and this could be considered as one of the main arguments of the buying approach. The SHILLER P/E ratio, which is a ten year cyclically adjusted price-earnings ratio, now is less than 3. The Trailing 12 months price-earnings is pretty high around 14, more than many other European countries but this is only because the profits of the listed companies in the Athens Stock Exchange are depressed by the long recession and deflation.
Another strong reason to start buying Greek stocks is the fact that the real estate market has suffered much and now prices are very low for European standards, this would most probably attract foreign investments and more tourism. As Greece couldn’t profit from a currency devaluations, as its neighbor Turkey did, it suffered an internal devaluation in many sector of the economy like real estate prices, wages, working costs, services and now the country is much more competitive.
The ECB purchasing program and the very low interest rates of the euro-zone will have positive effects in all the European economy and Greece will also benefit, for as long as it continues to be part of the Euro-zone.