An upbeat investment analyst

The problem of transparency in corporate governance constitutes a serious deterrent for the entry of foreign investors into the Greek stock market, despite the attractiveness of sectors such as banks and telecom firms, says JPMorgan’s stock strategy analyst Gary Duncan. During a recent visit to Athens, to speak to local clients, he also spoke to Kathimerini. What interest is there in the Greek stock market from foreign investors. Many Greek companies are not up to shape as regards corporate governance. Financial statement transparency is crucial and I know that International Accounting Standards (IAS) are being adopted, but for the next 12 months we shall not know the P/E of firms until the new, IAS-based statements for 2003 are issued. However, there is interest in telecommunications, fixed and mobile. The Greek market is mature, but still offers opportunities. There is also interest in Greek banks, which are under less pressure than those of other countries, but the lack of transparency and credibility in financial statements is a deterrent. At any rate, Greek banks now are in sounder positions than those of France or Germany, for instance. What will be the most prominent issues in stock markets in the coming months? The big issue, of course, is what will happen to Iraq, when the war will begin, when it will end and what will emerge from it. Investors are concerned about geopolitical problems in general, not just about Iraq or North Korea. The world has faced very serious problems in the last 40 years – the Cold War, Vietnam, the missile crisis, terrorism – and there is no reason why share prices should be different from previous decades; however, in many cases they are extremely low. The other big issue is the reappearance of a sustainable recovery in the global economy. The good news is that, at least in the USA, we have seen substantial improvement in the last four months, not a mere increase in consumer spending. There is now greater certainty about economic prospects in the USA. China last year accounted for 40 percent of the global rise in GDP. The third big issue for stock markets is corporate profits. We have just exited a four-year period of disappointing performances. For a start, productivity is up. Last year, we had an average rise of 3 percent in the USA. This year, we predict 12 percent for the USA, 5-7 percent for Europe and 12-15 percent for Japan. What regions/countries and which sectors do you currently prefer for stock investments? We prefer the UK, where valuations are the lowest since the 1960s, but also the USA, because of its more aggressive monetary and fiscal policies. But European stocks are very cheap, too, about 40 percent undervalued – what is missing is the catalyst that will propel them forward. As regards branches, we consider that the defensive ones (foodstuffs and beverages, for instance) are overvalued. We prefer cyclical branches (steel, paper), which will benefit from the recovery, and financials which will gain from low interest rates. Investor confidence has been hit hard by the accounting scandals. Where does it stand now? I believe that the worst is behind us. The big investment houses, like us, have begun a rating procedure in the USA based on practices of corporate governance, and are planning something similar in Europe.

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