Election result fuels optimism

Majority government seen securing stability; announcements of important business deals expected

Stock market circles take the view that the New Democracy party’s gain of a parliamentary majority – albeit a thin one – in Sunday’s elections will contribute stability and continuity to the Greek bourse.

The view seems to be borne out by performance on the first two trading sessions after the elections, when the Athens Exchange (ATHEX) general index gained 1.25 percent. However, there is no escaping the realization that the ATHEX cannot carve a path of its own, independent of the trends on foreign markets, which are continuing to experience the instability spurred by fears of a global credit crunch.

Manos Hatzidakis, head of investment strategy at Pegasus Securities, expects a spate of reports from foreign investment banks during this first post-election week. This was certainly borne out yesterday. He also expects several business deals, whose announcement had been put on hold in view of the elections, to go forward.

Vassilis Vlastarakis, head of analysis at Beta Securities, agrees that the ATHEX has taken a positive view of the re-election of New Democracy, adding that foreign investors would like to see political calm and a continuation of reforms, though at a much faster pace.

Alexandros Moraitakis, president of Nuntius Securities and the former chairman of the Athens Stockbrokers Association, noted that the mood on the Greek stock market remains optimistic and that important business deals are expected to be announced soon.

He also believes that outstanding market institutional issues are on their way to being solved, such as the gradual elimination of the stock market transactions tax and the application of the Markets in Financial Instruments Directive (MiFID) early in 2008.

Banks, on the other hand, seem to be taking a cooler view of the re-election of New Democracy – which is not to say that the prospect of a government without a majority before the elections left them unruffled, as it would throw complications into the execution of the budget and in economic policy. But they note that the economy and many private businesses have consolidated their positions in the market in recent years and are growing on their own power.

“The strong growth of recent years,” a bank official told Kathimerini, “has taken place more in Southeastern Europe, where Greek firms have invested in a big way, and less due to the policy of governments. This, of course, does not mean that there are no major issues that require action. But the international circumstances are not always favorable, and without an efficient public administration, the country cannot succeed in today’s particularly competitive environment.”

In recent years, other bank officials note, the gap has widened between the private sector and public administration, which remains bogged down in the practices, operating structures and mentalities of the past decades.

The great challenge for the government, they stress, is the rationalization of the operation and modernization of the public sector: This should include cuts in expenses, more efficient management of available resources, transparency, slashing red tape and tackling tax evasion. The speeding up of privatizations and the opening up of closed-shop professions and markets must be promoted resolutely, they argue.

Finally, they say that the government’s resolve to pursue reforms will be tested in the issues of the privatization of Olympic Airlines, and pension and educational reform.

Investment bank UBS said in a report on Monday that it expects investors now to increase their risk exposure after the re-election of the conservative government on Sunday. It forecast a rekindling of both company restructuring plans and rumors about merger and acquisition activity. UBS agues that the election result will especially increase the stock market prospects of companies in which the state still holds large stakes.

Regarding OTE telecom, of which the government is likely to sell a further tranche, UBS says the election of a majority government is expected to reduce its share risk premium.

It also takes the view that OTE’s present management will be retained and that the organization will pursue further cost containment and staff-cutting programs. The buying out of minorities and a share buyback program have not been ruled out.

UBS, which retained the target price of –26.50 for OTE and a “buy” recommendation, says that OTE may accelerate the sale of property assets.

Regarding the Public Power Corporation, UBS says that the strengthening of the management team could boost profitability, combined with possible changes in the regulatory framework in the next two years.

The report also expects a recovery in the construction sector.