As much as $2.1 billion could flow into the Athens stock exchange (ATHEX) from November 26, when the Morgan Stanley Capital International (MSCI) index is scheduled to reclassify the local bourse as an emerging market, according to a report issued on Wednesday by Citigroup.
The US banking group’s report anticipates the flow of over $500 million in the first 16 days from so-called passive funds and another $1.6 billion from active funds after the repositioning of the local market in the 18th spot in the MSCI index, ahead of Hungary, the Czech Republic and Egypt, next month.
In fact the estimate for a net flow of $516 million from passive funds may well be rather conservative, because many passive management funds have already exited the Greek bourse due to its low bearing, so the outflow from the Athens Exchange’s demotion from the developed market category will amount to no more than $100 million, the Citigroup report notes.
On the issue of demand from active management funds, Citigroup stresses that these investors have the capacity to turn to stocks beyond the list of chips that form the MSCI Emerging Markets (MSCI EM) index.
Citigroup further notes that Athens-listed enterprises’ profits will drop to their lowest point in 2013 and forecasts that with the exception of banks, the drop in profits will amount to 3 percent, while in 2014 they will post a significant rebound, to 31 percent.
Citigroup recommends stocks that have shown the capacity to stage operational and financial restructurings during the crisis, and are well positioned to take advantage of the stabilization of the country’s economy and the recovery to follow. Taking that into account, and based on its price assessment, it expresses a preference for the stocks of Public Power Corporation (PPC) and OTE telecom, with respective targets of 9.50 and 9 euros.
The MSCI is relegating the Greek market from developed to emerging status as of November because the Greek MSCI index has failed to meet a number of criteria related to market access, such as stock transfer and short-selling. Furthermore, several improved practices that Greek authorities had presented as far back as 2008 are so restrictive that they are not used.