Reckoning day for Greek stocks set to resume trading with curbs

Reckoning day for Greek stocks set to resume trading with curbs

After five weeks in a deep sleep, equities in Greece are about to become free to trade again — though how free is another question.

Closed since June 29, the Athens Stock Exchange will reopen Monday, according to the bourse. A host of restrictions will govern the purchase of shares by local traders due to capital controls imposed as the country acted to preserve its financial system. It will also be easier to suspend stocks that swing wildly.

The trading halt — the longest since the 1970s — was another blow to owners of Greek equities, who have watched as the market gave up 85 percent of its value since 2007. Based on the price of an exchange-traded fund that has changed hands in the U.S. throughout the suspension, shares in Athens may fall about 17 percent when they resume.

“It’s very hard for me to see why Greek stocks will be something people want to get involved in the near term,” said Chris Konstantinos, director of international fund management at Riverfront Investment Group in Richmond, Virginia. His firm oversees $5.5 billion and doesn’t invest in Greek equities. “You have to think the earnings direction for a country like Greece is going to be negative for a long time.”

Baby Step

While trading will be volatile, reopening represents another baby step for a country that has flirted with chaos during its months-long impasse with creditors. The deadlock broke on July 13 when Prime Minister Alexis Tsipras agreed to austerity measures to free up another bailout.

With bank withdrawals limited, Greek traders will only be able to buy stocks, bonds, derivatives and warrants with new money such as funds transferred from abroad, cash-only deposits, money earned from the future sale of shares or from existing investment account balances held at Greek brokerages, the Finance Ministry said in a decree on Friday.

No such constraints will apply to foreign investors, provided they were already active in the market before the imposition of capital controls.

Because the rules will govern how money is raised to purchase securities, they could result in a “loss of confidence to the market mechanism and integrity” by making it easier to sell, according to the Association of the Members of the Athens Exchanges.

Shrinking Economy

Greece was forced to shut banks and impose capital controls on June 29 after Tsipras ended bailout talks with creditors. The strictures have hamstrung the economy, which is forecast to be the only one in the euro area to shrink this year.

“They want to keep the capital they have from fleeing, but people will also be a whole lot less willing to provide money from the outside,” said Peter Jankovskis, who helps oversee $1.9 billion as co-chief investment officer of Lisle, Illinois- based OakBrook Investments. “Potential outside investors who find opportunities in the market might be afraid that if they put money in, they won’t be able to get it back out.”

Tighter rules will govern how much stocks can swing as trading resumes. For the first three days, equities will be able to rise or fall by a maximum of 7 percent in 10 minutes, the bourse said. That’s down from the previous ceiling of 10 percent in five minutes.

ASE Moves

The trading suspension at the end of June came just as investors were getting more optimistic on Greek shares. The benchmark ASE Index surged 16 percent the last week they could buy and sell stocks, its biggest jump since 2008. It fell 3.5 percent this year through June 26.

During the closure, investors used an ETF listed in the U.S. as a proxy for Greek stocks. The Global X FTSE Greece 20 ETF plunged a record 19 percent the first day shares in Athens were suspended, and then rebounded. It rose 2.6 percent on Friday.

The ETF had been a popular trade in 2015, with investors sending money to it every single week until the shutdown. In total, it gathered $281 million, heading for a record year of inflows. Its market value reached an all-time high of $367 million on June 25.

The fund may not be a perfect predictor of where equities in Greece go when they restart. When Cairo’s exchange was closed for almost two months in 2011 during the Arab Spring uprising, traders turned to the Market Vectors Egypt Index ETF listed in the U.S. Its price slipped about 1 percent during the suspension, then plunged 8.1 percent after the exchange reopened.

“Why would anybody want to be invested in a controlled market?” said Don Gimbel, a global portfolio manager at Geneva Advisors in Chicago, who oversees about $9 billion. “I don’t know where to look to judge how bad it can get.”


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