During the past five years, the composition of investors in the Athens Stock Exchange has changed drastically as a result of Greece’s entering the European Monetary Union. The transition of the ASE from a developing to a «mature» market was followed by a significant change in the composition of investors. Foreign funds that invest in higher-risk, but also higher-yield, markets withdrew and were replaced by a different sort of institutional investors, more discerning, more demanding and with less exposure to Greek stocks. After a period of rebalancing, currently (end-February 2004) Greek and foreign institutional investors control shares that represent 32.8 percent of ASE’s total capitalization. Of that, 17.9 percent, corresponding to stocks worth about 16 billion euros, belongs to foreign institutionals and 14.9 percent, or 13.5 billion euros, to Greek institutionals. Blue chips preferred An analysis of the data published at the end of each month by the Central Shares Depository makes it obvious that foreign investors prefer blue chips. Their holdings account for 23.2 percent of the shares of firms included in the FTSE/ASE-20 index of blue chips, a capitalization of 12.5 billion euros. Their most important shares are in the big state-controlled and private banks and in large utilities such as OTE Telecom and the Public Power Corporation. Another 2.6 percent of blue chip shares is held by «other legal» (foreign) entities. These include off-shore firms, a great part of which, market insiders say, belong to Greek business people. Thus, the official data may slightly overrepresent the holdings of foreign investors. In the same blue chip index, domestic institutionals (banks, insurance firms, brokerages, mutual funds and portfolio investment firms) hold a 13.3 percent stake, corresponding to a share worth of 7.2 billion euros. The bulk of the shares is held by «legal entities,» that is the listed firms themselves or, in some cases, the State. In the three years, specifically, since end-May 2001, that ASE has been counted among the mature markets, the behavior of foreign institutionals has remained essentially the same. According to Depository data, their holdings of blue-chip stocks have varied from 20 percent in May 2001 to 24 percent in August 2002. The latest preelection period, which unofficially lasted two months, did not affect the foreign institutionals’ behavior at all. This is a sign that, despite its problems, the ASE is indeed a mature market. Picking stocks By analyzing the positions they hold in blue chips, mid-caps and small-caps, the obvious conclusion is that foreign institutionals prefer sure investments devoid of excessive risk and that their investments are the result of analysis and long-term observance of a stock’s course. We should also not underestimate the importance of information provided by the companies themselves who, in the past few years, have done their best to reach potential investors: Road shows are now part of the normal operation of all large Greek corporations. The most criteria employed by foreign institutionals in picking a stock are financial results, the company’s development and prospects, the effectiveness of its management and, consequently, the degree of confidence in its decisions and, finally, the company’s capitalization. Their holdings in mid-caps represent just 8.8 percent of the total – stock worth about a billion euros – and their small-cap holdings account for 6 percent of the total, or 456 million euros’ worth. On the contrary, domestic institutionals are more balanced in their preferences. In addition to a 13.3 percent share in blue chips, they hold 27 percent of mid-cap stocks, corresponding to a value of 3.3 billion euros, and 12.8 percent of small-caps, about 970.2 million. It is easy to explain domestic institutionals’ preference for mid-caps. They are able to follow mid-cap companies more closely because they have a greater experience in the market. Besides, these firms, because of their size, do not interest foreigners much. Corporate bonds Domestic investors are also dominant in the corporate bond market. they account for 92.8 percent of the total capitalization of corporate bonds in Greece, corresponding to a value of about 192 million euros. Domestic institutionals account for a 58.2 percent share of domestic corporate bonds (111.7 million euros), while «other legal entities» account for 23.1 percent (44.4 million) and individual investors for 11.4 percent (22 million). All foreign investors account for just 7.2 percent of the corporate bond market, holding bonds worth 13.8 million euros. Of these, foreign institutionals account for 4.1 percent, or 2.7 million. This low participation can be partly explained by the fact that corporate bonds are a relatively recent development in Greece and that foreign institutionals invest in companies whose bonds are assessed by the large international credit rating institutions. Besides the bigger banks, few other listed firms fulfill this requirement. Where they come from According to Central Share Depository data, foreign investors of all types hold shares traded on the ASE worth more than 29 billion euros. EU investors account for 58.8 percent of these holdings, valued at 17.1 billion euros. Non-EU investors hold the other 41.2 percent, worth about 12 billion euros. Among European countries, Luxembourg comes first with a 22.6 percent share, followed by the UK (16.9 percent), France (9.8 percent), the Netherlands (4.2 percent), Germany (2.2 percent) and Italy (1.1 percent). Investors from other EU countries hold less than 1 percent, with the Portuguese holding just 0.031 percent of the foreigners’ share in ASE. Among the non-EU investors, the United States is top, with 16.2 percent of all foreign holdings. Next in the list are tax havens: Cyprus – which, through its EU entry will cease to be a haven – with 7.1 percent, the Cayman Islands (3.23 percent), Switzerland (3.19 percent), Liberia (1.9 percent), the Virgin Islands (1.7 percent) and Lichtenstein (1.45 percent). Among US investors, the largest are mutual funds, with Fidelity Investments probably the most important, since it holds more than a 5 percent stake in several important Greek firms.