ECONOMY

Greek stock rout means ASE is world’s 2014 worst after Russia

Anxiety that voters will kick out leaders committed to Greece’s bailout wreaked havoc on markets, with a three-day slump in stocks making them this year’s worst performers behind Russia.

The ASE Index is heading for its worst week since 1987 and has lost 29 percent this year. Only Russia’s RTS Index did worse, with a 43 percent plunge. The rout spread to Greek bonds, with rates on three- and five-year notes jumping yesterday to the highest levels since the 2012 debt restructuring.

Greece’s government said this week it would start the process of electing a new president early. The risk is that Prime Minister Antonis Samaras will have to call a parliamentary election that anti-bailout party SYRIZA might win, reintroducing the turmoil that threatened the European currency union two years ago. SYRIZA wants a writedown on Greek debt held by euro- area member states and the European Central Bank.

“The fear factor is currently at a maximum,” said Andreas Kontogouris, an institutional sales trader at Athens-based Beta Securities SA. “The market is pricing in the worst-case scenario — the potential of a new government.”

The ASE has slumped 40 percent from a high in March, including a 20 percent plunge in the past three days that sent it to its lowest level since July 2013. Investors have pulled money from a U.S. exchange-traded fund tracking Greek equities for a record four straight months.

The nation’s parliament will hold the first of three possible votes to appoint the president on Dec. 17. Eight independent lawmakers said this week they are ready to back Samaras’s nominee, Stavros Dimas, a former European commissioner. The premier would need to find 17 more votes from the 300-seat chamber to reach the supermajority he needs to elect a new head of state.

“It’s reminding us of 2012, when Greece was nearly collapsing,” said Louis de Fels, a fund manager at Raymond James Financial Inc. in Paris. His firm oversees about $53 billion. “If a new government is elected, this new one is against the troika. It could mean that by the beginning of next year, Greece won’t have any help from the ECB or other groups in Europe. The market doesn’t like the uncertainty.”

The ASE rallied to an almost three-year high in March, after Greece carried out the world’s biggest debt restructuring and cleaned up its public finances. It’s slumped since then as bank defaults in Portugal and a weaker euro-area economic recovery strained confidence in Europe’s peripheral markets.

“There is a huge deterioration in the belief that there is a political solution, medium and short term,” Steen Jakobsen, chief investment officer at Saxo Bank A/S in Copenhagen, said in a phone interview. “The market is now 50/50 split whether the gamble by Samaras is a good thing or a bad thing. Markets are overreacting in the short term, but of course this is a potential problem.”

[Bloomberg]