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Greek Equity Strategy | Thoughts on-the-go

Testing times – After a bout of enthusiasm in early and mid-2021, underpinned by the vaccine rollout and corporate earnings/macro support, momentum in Greek equities has waned recently with the benchmark index down -4% in the last month (vs -2% for the Stoxx 600) following Friday’s sell-off triggered by the “Omicron” variant. The latter added to stagflation concerns and ebbing risk appetite in the face of the COVID spike witnessed in previous weeks, which have been weighing on the Greek stock market in H2. These have left the ASE with an 8% return year-to-date (vs 20% for EU stocks) and our Greek adj. basket (excl. the two banks that proceeded with a capital raise in 2021) just 2% above pre COVID levels (7% for Stoxx 600).

What about COVID? – COVID concerns have ratcheted back up internationally in the light of the new omicron variant. Domestically, cases remain near record levels, as is the case for fatalities, while pressure on the health system is on the rise (ICU occupancy >90%). The government recently tightened restrictions limiting access of unvaccinated individuals to several venues (including bars, restaurants, theaters etc.) while rendering some social activities more costly for people who have not been inoculated (e.g. mandatory display of negative COVID test for access to retail shops). As can be seen in this report, the latest wave is more severe than the previous ones, quite natural as the govt has raised the bar for social distancing restrictions given the availability of vaccines. On the latter, inoculation rates in Greece remain somewhat lower than in other EU countries (e.g. Spain, Italy), and this raises some concern as to the extent to which the govt can continue to tackle the COVID wave simply by targeting solely non-inoculated individuals. The emergence of Omicron adds another source of concern, given early indications for higher transmissibility than delta. The key question here is the efficacy of existing vaccines against the new variant, which, on our understanding, will take a couple of weeks to gauge. With these in mind, risks of the govt imposing wider curbs are certainly not negligible, despite state officials’ assurances that there will be no nationwide lockdown. We estimate that a full shut-down would cost c€1-1.2bn translating into a 0.6-0.7% drag on GDP.

2022: Reasons to be cheerful – With Greek GDP poised to grow c7-8% in 2021 and c4.5-5% in 2022, the general backdrop looks quite supportive for Greek equities, notwithstanding the well-known challenges internationally. We estimate this will filter through to c14% operating profit growth in our non-financials’ universe next year, following 10% in 2021e, rendering Greece an “earnings-driven” market rather than simply a case of re-rating. On the latter, Greek stocks (both banks and non-financials) trade at attractive valuations, namely at c25-30% discount to EU/periphery peers, rendering the relative case quite compelling. On an absolute basis, Greek non-financials trade at par with their long-term history but this is in view of a multi-year cycle of above-trend growth given the RRF growth impulse (4-5% through to 2023).

Our view – Markets are likely to be volatile in the next couple of weeks, with datapoints about vaccine efficacy against Omicron being the overriding driver. With Moderna officials optimistic that a reformulated vaccine – if needed – could be ready early next year, we advocate that any potential correction should be seen as offering a compelling entry point. At this stage, we advise exposure in the following: 1) stocks with high and sustainable dividend yields, with limited impact from cost inflation (e.g. OPAP); 2) policy-related stocks offering exposure in the green transition (PPC, Mytilineos); 3) banks, in view of the “great clean-up” from NPEs, credit expansion and the still attractive valuation (NBG); 4) reopening stories/cyclicals (OPAP, Mytilineos, Motor Oil).