Stock market expects a strong government to emerge from polls

Investors are expecting a strong government, with a clear majority, to emerge from tomorrow’s election. In yesterday’s Athens Stock Exchange session, this was illustrated by the general index’s breaching the 2,500-point level, if only momentarily, after several weeks of ups and downs. The index may have finally settled at 2,489.38, 40 points below the intrasession high, but still made significant gains which analysts attributed to high expectations about the government that will emerge from the election. In other words, investors expect that the new government will have a large enough majority to be able to tackle the economy’s weaknesses – most of all, the deviation from fiscal stability – and provide the economy with a needed boost and better prospects. As for ASE’s behavior after the election, institutional portfolio managers believe the market will respond favorably to an election result that will show a significant gap between the winner and the runner-up. The alternative result, a small or insignificant gap, is considered a nightmare scenario because it will likely lead to a period of instability and political infighting. However, the nightmare scenario is considered highly unlikely: the vast majority of market professionals are forecasting that, in the few days following the election, the ASE general index will rise. This does not mean that the market will rise indiscriminately. Clearly, following the initial burst of optimism, it will await the new prime minister’s actions and react accordingly. A first indication will be the choice of ministers. If the choice of ministers for the positions directly related to the economy is considered timid or made in the name of balancing intraparty factions, the market will react negatively. But if the new ministers inspire confidence and are thought capable of solving the thorniest problems and provide a new momentum to the economy, it is certain that the market will react positively. However, it is the lower-level appointments that will prove crucial and which investors are eagerly awaiting: These concern the new top managers that will be appointed in state-controlled banks and listed public utilities. It is obvious that expectations are great and that the market will be a stern judge of new appointments. Everyone involved in the market wants these appointments to be made on the basis of competence and experience. Any appointments based on other criteria, especially cronyism, will cause friction and will very quickly reverse the initial optimism created by the election of a strong government. Foreign investors, especially, tend to react very quickly, and when they are unhappy they tend to show it – through mass sales – unhesitatingly.