Despite worries about major companies going bankrupt, allegations of corruption scandals involving businessmen and high-level government officials and the adverse effect off stubbornly high inflation on the country’s international competitiveness, the Athens Stock Exchange (ASE) continues to show signs of life and recovery on the back of better-than-expected first-quarter results by some heavyweight companies, amid solid first-quarter GDP growth numbers, some M&A activity, improving foreign stock markets and the prospect of general elections. Although technical indicators point to a major reversal in trend, we still believe it is too early to reach that conclusion. The Athens general share index recorded gains of 9.90 percent and the blue chip FTSE/ASE-20 rose 11.71 percent last week, outperforming both the Pan-European Eurotop 300 index and the US S&P 500 by more than five percentage points. The picture is more impressive if one takes a look at how the MSCI-Greece stock index, used by foreign institutional portfolios as a benchmark, has done on a monthly and even on a quarterly basis. MSCI-Greece is the best performing stock index in the developed markets since the beginning of June, recording gains of 11.59 percent versus 7.16 percent for runner-up MSCI-Norway. Moreover, it is the best performing stock index since the start of the second quarter, posting gains of 32.06 percent against Norway’s 22.81 percent. The ascent of the Athens Stock Exchange began at end-March, that is about two weeks after the major European bourses started gaining ground, discounting correctly a quick US victory in Iraq. This may explain why the Athens bourse has outperformed them since the beginning of the second quarter, while posting moderate gains year-to-date. Even fewer have noticed that the Greek general stock index may be following a pattern similar to that during the first Gulf War in 1990-1991. Figures show the general index fell 33.5 percent from August 2, 1990 to January 17, 1991 when the allied military intervention became evident. The bourse rebounded strongly, gaining some 33 percent from the outset of Operation Desert Storm to the date Iraqi forces starting pulling out of Kuwait. If we see a repetition of the sequence after the first Gulf War and assume the decline explained by it – a rough estimate by any means – it started in early September 2002 when the general index went from 2100 to 1930 points in a matter of a few weeks. One may then argue that the Athens general index has further to go after closing at 1876.64 points on Friday, close to where it was on September 20, 2002. Still, one can not say that this is the story, because the steep drop in the ASE during that period was associated with the tumble of heavyweight OTE shares linked to its adventures in Romania and the prospective offering of shares of heavyweight bottler Coca-Cola HBC by its major shareholders. What is certain though is that all major stock indexes pierced the 200-day moving average in a convincing way last week, including those in developed markets, sending a very bullish signal about the future. Nevertheless, the move, which has taken the general stock index from 1462 points in late March to 1875 points last Friday, has failed to rekindle interest from bruised retail investors, while many local fund managers appear sceptical and unconvinced of the move some link to the 2004 Olympic Games. Undoubtedly, the deal to merge Hellenic Petroleum with Petrola, belonging to the Latsis group, helped in the sense that forgotten M&A deals came back into the limelight. The revelation that a couple of foreign funds were actively buying into listed closed-end funds to take advantage of their shares trading at a deep discount to their NAVs (Net Asset Values), while hedging their positions via selling stock index futures in the derivatives market, also helped investor sentiment. Still, few doubt that beyond the signs of a technical rebound by a an oversold and overly cheap market which characterized the initial phase of the advance, it was fresh money from pension funds and some local and foreign institutional portfolios and hedge funds that have been behind the rise. It is a fact that the Athens bourse is up year-to-date, instilling optimism in business and government circles that better days lie ahead. The prospect of rising bank earnings and a rebound in the profits of some industrial companies, such as Titan cement, bodes well for the Athens bourse. Everybody should know that though the ASE can outperform or under-perform major European bourses to a certain degree, it cannot, however, be seen as separate, despite superior macroeconomic growth prospects this year and next. A month or so ago we noted the sharp gains in the Athens bourse since March 31 and asked whether this was just a fluke or the major trend reversal many pundits have been waiting for the last three years. We said at the time the upward move did not signal any major trend reversal but that «it may signal the end of the three-year steep drop and the beginning of a consolidation period with an upward bias in which stock picking is the rule of the game. This does not mean the market cannot have a powerful rally…» We still subscribe to this point of view, awaiting a clear signal from abroad to speak of a major trend reversal. Still, things look better than they did a month ago.