EUR 150.00 For Business Accounts Only

Greek Equity Strategy – Pre-Christmas thoughts | The Grinch vs Santa rally

Grinch in the house? With Greece’s macroeconomic prospects looking much healthier than Europe in 2023 (1-2% GDP growth), Greek public debt costs being largely fixed (thus not affected by rate increases) with long average maturity and without significant debt redemptions, and RRF funds set to underpin economic activity in the coming years, the Greek investment story certainly looks attractive in the medium term. However, in the short-run the international backdrop seems quite tricky heading into 2023, especially as hopes for a pivot by central banks have been repeatedly dashed. In our view, the headwind from the tightening of monetary policy settings on equities caps any significant near term upside. On the domestic front, the key risk event for Greece is the general elections (H1’23). Although these are not likely to result in a fundamental shift in policy, the path until the formation of a (coalition) govt will be far from linear and will most likely require two election rounds, thus signaling a period of volatility. On that basis, we expect 2023 to be a year of two halves, with H1 potentially seeing a retracement lower in view of the domestic elections and against the background of international headwinds (peak rates).

How to position: opting for quality – Having these in mind, we doubt the Greek market is in the clear just yet, and we would thus be fading the recent rally (ASE +16% since the September lows) or any potential further move upwards into the year-end (which might be the result of low positioning and technicals). We retain our defensive posture for H1’23 preferring quality, visible dividend yields and stocks with solid operating momentum, with OPAP (PT €15.9), Mytilineos (PT €25.6) and Jumbo (€17.2) being our top picks. As for banks, the NII upside from rate hikes, improving ROTEs and depressed valuations leave a positive risk/reward skew for long-term investors, but the pathway will be bumpy we reckon. Within this space we continue to favour NBG given the combination of best-in class capital metrics by EU standards, highest NPE coverage among Greek peers and compelling return/valution metrics (>10% ROTE post 2023e for 20% COE on our estimates (a level similar to the eruption of the pandemic, when GR banks had >20pps higher NPEs). On that basis, Greek stocks seem to already price in a pessimistic setup and have de-rated enough that the effect of rising rates on valuations may wane. However, we expect valuations to remain hostage to sentiment and the prevailing risk mood in H1’23. Performance-wise, the ASE has posted a positive return ytd outperforming most international markets (having started from a low base). The bar is thus higher for 2023 but the compelling valuations certainly offer some cushion.

Politics: backdrop becoming increasingly perplexed – In our previous Strategy update we argued that the wiretapping issue rendered the political backdrop somewhat more precarious. The situation has become even more perplexed after the European Parliament corruption scandal involving an MEP of the Socialist & Democrats group. The resulting polarization and tension between the two mainstream parties has made the scenario of a coalition between the ruling party and PASOK – the most obvious viable scenario of a govt being formed at the next elections – somewhat more difficult. We think that the reemergence of political uncertainty – even if it eventually results in no real change in policy – is likely to put upward pressure on equity risk premia, thereby capping any potential bounce in the coming months.