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Greek Equity Strategy | Overwhelming win for ND and poor showing for Syriza; 2nd election to follow but clear path to re-rating

New Democracy garners 40.8% scoring resounding win, smashing opinion poll forecasts – With >99% of the vote counted at the time of this writing, New Democracy (ND) garners 40.8% of the popular vote compared with just 20.1% for Syriza. The gap between the two parties – at an overwhelming 20.7% – is far wider than the c6% envisaged by most opinion polls, thus constituting not only a clear win for ND but a massive blow for the main opposition. Notwithstanding its emphatic victory, and the fact that it has actually increased its percentage in the popular vote by almost 1pp vs the 2019 elections, ND has secured just 146 MPs in the 300-seat Parliament, as a result of the proportional electoral system implemented at these elections. Of note is that the far-left parties (mainly DiEM) have failed to secure the minimum 3% threshold and, as a result, the new Parliament comprises just 5 parties. PASOK came third with 11.5% (41 seats), the Communist party placed fourth (7.2%, 26 seats) while Greek Solution was fifth (4.5%, 16 seats).

Runoff likely on 25th June; ND on track for absolute majority – As per the Greek constitution, the President of the Republic will commission the leader of the 1st-placed party to form a govt enjoying the Parliament’s confidence. Although a coalition is possible numerically, given ND and PASOK together enjoy 187 seats, ND looks set to return the mandate on the premise that a govt with a single-party absolute majority would be more solid and better placed to continue pressing ahead with reforms. The mandate will then be passed on to Syriza and PASOK, but given Parliamentary dynamics, any talks are to be inconclusive. As such, we expect a 2nd vote to be held, most likely on 25th June (earlier than previously expected as ND seems to be keen to capitalize on the momentum), this time under an enhanced proportionality system (with a caretaking govt in place in the interim).

Round 2: What to expect – As well telegraphed, the system at the second voting round will make the formation of a govt easier, given the bonus system in place (20 seats plus 1 extra seat for every 0.5% votes above the 25% threshold). Extrapolating the first-round result to the runoff election indicates ND ending up with more than 170 seats, thus achieving a comfortable outright majority. As such, from a market perspective, this is a best-case scenario ensuring policy continuity, reform implementation and fiscal prudence, while leaving scope for the country’s upgrade to investment grade earlier than the market expects (next catalyst is the rating review by Fitch on 9th June).

Clear win, clear path to re-rating; we move pro-risk in our proposed allocation – The electoral cycle was the last bump for Greek equities. With that hurdle cleared, we expect a sharp re-pricing of Greek assets in the coming weeks, as investors position for the compelling Greek thesis in the next few years (2-3% GDP growth, attractive debt characteristics, cheap valuations). We advocate that investors tilt towards a pro-risk stance, shifting their portfolio towards higher-beta stocks such as banks & PPC, which we expect will be among the main beneficiaries of ND’s resounding victory. We reflect the clear path to re-rating for Greek stocks adding PPC (in replacement of OTE) and Piraeus Bank in our top picks portfolio. The latter also includes OPAP, Jumbo and Mytilineos.