Forced exposure

The Greek market is entering a phase of forced exposure to international standards. This is how one should read the recently published results and the behavior of the majority of business leaders. Maybe the collapse of certain myths is difficult to digest. Reading balance sheets and drawing conclusions from them was a difficult exercise this year. You not only needed the necessary knowledge, you also needed especially strong eyesight. Many companies published their results in letters and numbers barely visible to the naked eye. You also needed a lot of time and will to read the results because most firms chose to publish their final 2002 figures within the last two days allowed by law. Any way you read the results, they are nothing to cheer about. It gets even worse if one reads them from the perspective of an investor looking, finally, for some good prospects on the Athens Stock Exchange (ASE). About one in three listed companies has registered losses and thus the usual benchmark, the price/earnings ratio, does not exist. Among the profitable enterprises, 58 have a P/E ratio of above 30. That is, these firms trade on the stock market at a price (per share) at least 30 times greater than their earnings (per share). This becomes even more of a problem when we consider that, for some reason, Greek enterprises compute P/E using pretax profits. This is a Greek idiosyncrasy that foreign analysts never miss. In every other country, the P/E is calculated using net profits, which increases the P/E ratio by at least 30 percent. What this means is that we shouldn’t be fooled by the protracted drop in the ASE general index into believing that shares have automatically become cheaper. Beyond the concern, even embarrassment, caused by the 2002 results, these prepare us for what will happen this year. At the end of 2003, all Greek companies listed on the ASE will be obliged to adopt International Accounting Standards (IAS) in preparing their balance sheets. IAS adoption will provide a clearer, more accurate picture of their results and worth at current prices. The government is aware of the cleansing effect this will have; this is why it has chosen to make adoption of IAS mandatory a year ahead of the European Union. Under current circumstances, it is not certain that the market can withstand a further shock but, in any case, developments will be hastened. This forced march into international reality will have its fair share of victims, of course, but that is a natural result for many of those long accustomed to operating in the domestic cocoon.

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