The multiple benefits of investment grade
The election of a strong government would boost more than just the Greek bonds, analysts expect
Markets are expecting Greece to regain investment grade soon after Sunday’s general election, provided that a strong government comes out of the process. When Greek bonds emerge from the “junk status” they have been at for more than 12 years, they will not be the only ones to benefit.
The recovery of the investment grade will bring to the country a new audience of investors, with quality characteristics and a long-term horizon, while it will also support the upgrade of the Athens Stock Exchange to the category of developed markets, which, however, is not expected before the end of 2024 with the beginning of 2025.
This translates into an increase in the capitalization of ATHEX as a percentage of the gross domestic product thanks to rising valuations and in listing new companies – also thanks to the improvement in liquidity conditions, while Greek listed companies will continue to benefit from a more favorable macroeconomic environment that will improve their fundamentals and borrow on more favorable terms from the markets.
Underlining the size of the public of investors to which the Greek assets will be “available,” Axia Research points out that in the developed markets the assets under management reach $52 trillion, compared to only $6.3 trillion in emerging markets.
Also, as a manager of a French bank that also trades Greek bonds has noted to Kathimerini, the investment tier will bring many purchases from funds that invest in the main international bond indices, which will range around 16-18 billion euros. Given that there are only €74 billion of Greek bonds in circulation, €35 billion of which are with the European Central Bank, this is certainly a significant amount.
However, as it is estimated, investors will start to position themselves in advance at Athinon Avenue. betting on this development, as they did with Greek bonds. Eaton Vance, an American fund and that forms part of Morgan Stanley Investment Management, has already started to show interest in investing in Greece from 2022, with its executives having visited the country in the previous months and pointing out to Kathimerini that they are looking at the domestic market.
The main issue for the fund is the political landscape of Greece. As Eaton Vance analysts point out, the impressive story of Greece is expected to be strengthened if New Democracy is re-elected.
Since coming to power in 2019, the business-friendly government of Kyriakos Mitsotakis has worked to restore confidence and reignite growth. The centerpiece of his reform agenda, an ambitious package of tax cuts, appears to be having a substantial impact. It has boosted taxpayers’ disposable income but also companies’ free cash flows for consumer spending and investment.
According to Eaton Vance, the reforms are paying off for the Greek economy. Although the country was hit hard by the pandemic, GDP growth exceeded expectations during the recovery from Covid-19. Greece is implementing reforms as part of the EU Recovery Plan. and significant investments are being made by both the public and private sectors in the green economy and digitalization, at a time when it is expected to regain investment grade very soon.
“The conclusion is Greece stands out as the success story of the markets thanks to the reforms that have improved the investment climate and given impetus to growth. As investors in emerging markets we seek to identify countries, such as Greece, where reforms and sound macroeconomic management can lead to structural changes and positive investment results for our clients,” the US fund emphasizes.
