Thursday August 30, 2018

LETTER FROM LONDON: INVESTORS SEEM TO OVERESTIMATE CURRENT RISKS FOR GREECE

The Greek market has yet to attract the long awaited interest of investors despite the tangible improvement in the macroeconomic position of the country. Green shoots of recovery are evident across the board: the unemployment rate has dropped to 19.5%, down from 27.8% in 2013, the Purchase Manufacturing Index has remained above the 50 expansion mark for 14 consecutive months, industrial production, retail sales and most indicators confirm a substantial improvement. At the same time, the credit rating agencies are now upgrading the country at an accelerating pace, with Fitch rating the Greek government bonds at just 3 notches below investment grade. We believe that the aforementioned trajectory of a gradual recovery may not be overshadowed for much longer by the general concerns of a crisis in emerging markets, with Argentina and Turkey as the forerunners,  and concerns that the government may try to regain the support of the electorate in expense of the already agreed reforms. We have to remember that Greece will remain under strict surveillance after the end of bailout period, with quarterly reviews continuing for several years. At the same time, it is obvious that the Turkish crisis has weighed unfairly on the Greek market. This due to the fact that the economy is not highly dependent on Turkey, with just 6.8% of exports directed there and since Greek banks have reduced their exposure to just €115mn, down from €26bn two years ago. This article originally appeared on Banks.com.gr
Monday July 23, 2018

LETTER FROM LONDON: EMERGING MARKETS OUTLOOK

Many emerging markets are still in flux from the strengthening US dollar, which we foresee continuing.  Emerging and frontier market local currency debt is more affected than respective hard currency paper. Pakistan let the rupee devalue by another 6% this week, taking the cumulative devaluation over the last 8 months to 19%. The next hurdle for Pakistan is elections on 25 July, which could perhaps cause another small post-election currency devaluation. More importantly, we expect much-needed conversations between Pakistan and the IMF to commence soon thereafter, as long as any post-election unrest that might occur is contained However if violence does occur, investors will continue to stay away. The Trump – Putin meeting did not do the Russian market any favours at all. Russian shares dropped almost 4% this week, making it the second worst performing equity market in the world behind Venezuela. Year to date, Russian equities are one of the few markets still in positive territory (+7%) but we do not see this continuing without government support. Sanctioned Russian money that is trapped in the country with limited places to be spent other than on Russian securities is providing a further boost. Tit-for-tat US trade warfare, affecting China in particular, will continue to keep most Asian markets quiet however we expect to see a slowdown in the frequency of fresh tariff announcements.  Many US manufacturers are already feeling the pinch of the increased price of raw materials which has resulted in lost business, price increases or lay-offs. These impact negatively on Trump’s approval ratings: unfortunately it is the most vulnerable American worker who suffers as a result, instead of benefitting as intended. This article originally appeared on Banks.com.gr
Monday July 16, 2018

LETTER FROM LONDON: A BRIGHTER PICTURE FOR GREECE BUT NOT OUT OF THE WOODS YET

Despite recent debt relief measures, credit rating upgrades and future post-programme quarterly monitoring, there is still a case for caution for investors in Greece. This is mirrored in the almost record low trading activity on the Athens Stock Exchange; it is obvious that investment fatigue permeates the expectation of a long-awaited return to normality in the Greek real economy. The key catalyst for improvement in the real economy relates to the much-needed relaxation of current over-taxation that both the Greek government and main opposition party have vowed to implement, with the consent of the country’s creditors. The Finance Ministry is reportedly working to deliver a set of proposals to Prime Minister Alexis Tsipras by end July detailing €700mn tax cuts to be implemented next year, with policy options including reductions to the ENFIA property tax, income tax and social security contributions. With tax revenues representing 38.6% of GDP, according to the most recent 2017 report by OECD, Greece is ranked within the top 10 most overtaxed countries globally. At the same time, a further concern is that in terms of taxes on goods and services, Greece is ranked second globally, which we feel creates a difficult environment for local consumption and for the economy in general to flourish. In the absence of fast growth in the local economy, foreign investors are focusing more and more on Greek government bonds. This comes ahead of further expected credit rating upgrades and a possible inclusion in the European Central Bank’s (ECB) quantitative easing programme (during the small window that exists between now and the end of Greece’s third bailout programme), post a positive debt sustainability analysis by ECB. Furthermore, we note record levels of interest in commercial real estate opportunities in the country and a growing interest in export-oriented companies, which after historically slow growth is expanding rapidly in private equity opportunities. This article originally appeared on Banks.com.gr
Tuesday July 03, 2018

LXM GROUP RESTATES OPTIMISM FOR GREECE AFTER NEW YORK INVESTMENT FORUM

The 7th Greek Investment Forum in New York was held on 19th and 20th June 2018. The Forum concluded successfully with the participation of 60 investment funds and 90 portfolio managers, and 400 one-on-one meetings were held with listed companies. LXM Group was proud to continue its support of the event again as a Gold Sponsor. Petros Mylonas, Head of Southern Europe at LXM, commented: “We remain hopeful for the Greek market and economy as it is at a major crossroad after 8 years of crisis. LXM is delighted to continue supporting an event that encourages the return of investor confidence in the country.” Kimon Roussos, Head of Sales, added: “LXM Group received positive feedback from clients we invited and there was ample interest to meet the many Greek corporates who attended. Sentiment at the Forum was that the worst of the crisis has now passed. Investors commented on the quality of the management of corporates and their hard work in sustaining their businesses during the difficult last few years.” The event was organised by the Athens Stock Exchange and the American-Hellenic Chamber of Commerce and aims to promote Greek business and investment opportunities in the USA. 23 listed Greek companies participated in the event, representing the banking, energy, telecoms, gaming, real estate, oil & gas, gaming and aviation industries. The delegation included the US Ambassador to Greece, Mr Geoffrey Pyatt, and the Alternate Minister of Economy and Development Mr. Alexis Charitsis. Briefing sessions were held with the CEO of the Athens Exchange Group, Sokrates Lazaridis, the President of the American-Hellenic Chamber of Commerce, Simos Anastasopoulos and the Chairman of the Hellenic Capital Market Commission, Professor Charalampos Gotsis. LXM would like to thank the Athens Stock Exchange and the American-Hellenic Chamber of Commerce for an excellent forum and looks forward to closer and further cooperation with both groups in the coming years.
Monday July 02, 2018

LETTER FROM LONDON: GREECE SECURED A POSITIVE DEBT RELIEF DEAL AT THE EUROGROUP

In a long-awaited development, Eurozone finance ministers agreed on a debt relief package for Greece. The agreement marked an historic moment for the country as it prepares to exit its third bailout programme in August this year. It comes after the implementation of more than 450 policy actions under the European Stability Mechanism programme alone, and ends more than eight years of international bailouts, which involved more than €240bn of loans disbursed by European official creditors. The debt relief package includes a 10-year deferral on interest and amortisation payments for the €96.6bn of European Financial Stability Facility (EFSF) loans under the second bailout programme, a large €15bn loan tranche (of which €5.5bn will be used to cover debt servicing needs) and €9.5bn to bring the total cash buffer to €24.1bn (covers sovereign funding needs for 22 months).  Also included is the receipt of profits accrued on bonds held by both the European Central Bank and other euro area central banks and the abolition of the step-up interest rate margin, as part of the enhanced post-programme surveillance that will include monitoring by the International Monetary Fund. Greece will receive semi-annual payments starting in 2018 until June 2022 as part of additional reforms. In our view the 10-year extension on both interest and amortisation payments for the EFSF loans is a step towards securing medium-term debt sustainability. At the same time, Eurogroup commitments to review the need for additional debt relief at the end of the EFSF grace period in 2032 (thereby ensuring that gross financing needs stay between 15-20% of GDP) also sends a strong message to the investment community. Furthermore, it potentially allows the IMF to provide a favourable review on medium-term debt relief under its on-going and eagerly anticipated Article IV Consultation with Greece. The market, having digested the complexities of the agreement, should look more kindly upon Greece. The large cash buffer covering funding needs (potentially even to the end of 2020), combined with a framework for ensuring sound fiscal policy over the medium-term, will in our view provide additional confidence to investors. Moreover, it seems apparent that potential political risks related to the electoral cycle are mitigated by official creditors’ fiscal and conditional monitoring. This article originally appeared on Banks.com.gr