The myth of the eager foreign investor

If we believe government officials, the Greek economy has suddenly transformed itself into a paradise for foreign capital. This is part of a game usually played when we are months away from a national election, as we are at this point. It is played usually by using statistics or telling half-truths. It is being said, for example, that the major contender to acquire state-controlled General Bank is «private bank» FBB, whose main shareholder is state-controlled and saddled with lots of bad debt: Agricultural Bank of Greece. More illuminating are statistics concerning transactions on the Athens Stock Exchange. According to these, in May 2001, domestic investors held 78.3 percent of the market while, at the end of September 2003, their share dropped to 71.2 percent. Conversely, the share held by foreign investors shot up from 21.6 percent in May 2001 to 28.7 percent in September 2003. If we break down foreign investors’ holdings, those held by institutions rose from 13.1 to 16.4 percent, companies’ holdings rose from 6 to 9.5 percent and other legal entities’ holdings – the category refers to offshore firms – rose from 1.9 to 2.2 percent. Individual foreign investors’ holdings remained steady at a low 0.6 percent. What has changed and foreign investors see opportunities that local ones fail to detect? Simply put, it is simply a mirage created by numbers. Actually, it was the value of domestic investors’ portfolios whose value, in the period under consideration, shrank from 86.3 billion euros to 54.9 billion, a 37.5 percent drop. On the other hand, the value of foreigners’ portfolios dropped only slightly, from 23.8 to 22.2 billion euros. This is not so strange, given that they invest mainly in less volatile blue chips. However – and here’s the catch – some of the «foreign» investors are domestic ones hiding behind the facade of a foreign-registered firm, whether offshore or not. This behavior is conspicuous enough to detect, even if we cannot change the categories. They often speculate in stocks whose attractiveness to a normal foreign investor, indeed anyone beyond a small circle of big shareholders, is not easy to fathom. We would wish that foreign investors indeed find the Greek stock market attractive and not just the bond market. This is not the case, yet.