Investor exodus expected when local stock exchange reopens
Thousands of investors have found themselves trapped in the Greek stock market as they failed to heed the strong messages of concern the market had been sending since the beginning of the year, especially in the stormy sessions of the first three weeks of June.
The 16.03 percent growth of the Athens Exchange (ATHEX) general index in the last five sessions before the imposition of capital controls served to disorient traders. They believed that the government was close to striking a deal with the country’s creditors, as turnover exceeded 530 million euros in five sessions.
Nevertheless, the soaring of state bond yields to levels seen only in defaulted countries was the safest indication that Greece was in a no-way-out situation.
The bourse’s free fall started in February, when the government’s fruitless negotiations with its creditors began; it reached its worst point in the first three weeks of June. Yet that major decline did not appear to worry investors. Instead they seemed appeased in the last week of June, before the market shut down. It is unknown now when it will reopen.
The impact on the local stock market is expected to be huge. The first side effect will be the downgrade of the Greek bourse from mature to emerging market by international credit rating agencies, having already suffered one downgrade by US index MSCI in November 2013.
A major downgrade like that will signify the flight of long-term funds and damage the confidence of investors who command significant holdings in the market’s blue chips. Many listed companies that rely on exports will have to seek alternative forms of financing to fund their expansion plans, such as relocation to other countries so as to eliminate the country risk from their borrowing. Already the lights of the Central European bourses are beckoning Greek enterprises that would like to draw funds at a zero cost.
The local market will then feel isolated, and with the banking sector severely injured, domestic investors are also set for an exodus. Feeling disappointed after being trapped for a number of years, they will simply opt to have their trading registration number deleted.
