Less than three months before the start of the 2004 Olympic Games, the investment community is wondering whether the Athens Stock Exchange has realized the benefits to be accrued from holding the Games in the country they were born. Although no one knows the answer for sure, there is reason to believe, given the expectations, that the bourse will be in for a pleasant surprise should Greece prove it can stage the Games successfully. There is no doubt that the initial enthusiasm and optimism for the impact of the Olympics on the Greek economy and the stock market has faded long ago, as problems related to the coordination, implementation and delivery of infrastructure and other projects came to the fore. Although this is regarded as bad news by many, there are others who see opportunity in it. «We (in the market) started off with what now appears to be excessive optimism. Communication mistakes, along with delays in the implementation of Olympic projects, turned the initial optimism into excessive pessimism, taking us from one extreme to the other,» says the chief executive officer and main shareholder of two listed Greek companies in the metallurgical sector. «If, as I believe, the Games run smoothly, we will be in for a pleasant surprise.» According to this businessman, the markets have not discounted a positive outcome and will react accordingly when this becomes apparent. Slowdown feared Concerns about the state of the Greek economy after the Olympics abound, with many fearing an economic slowdown as spending on infrastructure works related to the Games ends. The expected slowdown is seen as adversely affecting the valuations of companies listed on the Athens bourse and, therefore, on their stock prices. Moreover, many analysts, brokers and fund managers express further concerns about the unwinding of «Olympic» trades, that is, liquidations by foreign funds that took positions on the Athens bourse early on to capitalize on the event, knowing that three out of the four bourses of the countries that hosted Games did well in the Olympic year. Indeed, the general stock index of South Korea, hosting the Olympics in 1988, registered gains of 72.76 percent that year, closing at 907.2 points, versus 525.11 points at the end of 1887. However, one should note that 1988 was a good year for world stock exchanges, as the MSCI World Index ended up 21.18 percent compared to a year earlier. The opposite happened in 1992 when Barcelona hosted the Games. The Spanish IBEX 35 stock index retreated 9.93 percent to close at 2344.57 points at end-1992. This partly reflected a downward trend in equities, resulting in a 7.14 percent drop in the MSCI World Index. The Dow Jones stock index gained 26 percent in 1996, the year Atlanta staged the Games, with the MSCI World Index rising 11.72 percent year-on-year. The success of the Sydney Olympic Games in 2000 is thought to have helped the Australian stock index brave a sharp drop of 14 percent in the MSCI World Index to close with gains of 2.8 percent in 2000. Foreign funds Official data from the Athens bourse confirms that foreign equity holdings of Greek companies, especially in large-caps, have been increasing for some time. Although it is difficult to gauge the causes of this move, it is reasonable to assume that this partly reflects the improving fundamentals of local companies, especially banks, offering a unique story for the European realm, the previous underweight positions of passive foreign funds in Greek listed companies and finally positive expectations related to the Games, given the past stock behavior of the bourses of countries that have hosted them. So far this year, the MSCI-Greece stock index has been one of the top performers in developed markets, returning 5.09 percent year-to-May 21. This happened despite posting the second largest monthly loss of 7.428 percent in year-to-May 21, cited by some who claim that a number of foreign funds which have taken the «Olympic bet» are heading for the exit. The MSCI-Greece index ranked second in returns behind Norway and ahead of Germany in 2003. The majority of pundits tend to believe that foreign funds will sell a good deal of their holdings in Greek equities at some point before the Games and some go to the extent of predicting that a fake rally may take place beforehand to lure in domestic and other international investors. Changing attitude Although the pessimistic view is prevalent, others working for well-known foreign investment banks tell a different story. They point out that there has been a positive change in attitude and expectations in Greece’s ability to host the Olympic Games successfully this summer among foreign funds. If that’s the case, then the bourse’s underperformance so far this month should be attributed to company-specific events, such as OTE Telecom’s decision to halve its dividend per share, as well as to concerns about the impact of higher oil prices and interest rates on the world economy and bourses. It is difficult to say whether outflows by foreign funds will exceed inflows into Greek equities heading into the Olympics. This, however, will not be the sole factor affecting the Athens bourse thereafter. The success or failure of the event will weigh much heavier on the image of the Greek economy and the bourse, and will therefore have a much greater effect than the direction of foreign capital flows before the Games. Assuming everything goes well during the Games and given the predominance of rather unenthusiastic expectations in the investment community, the force of a pleasant surprise on the bourse and the economy in general should be much greater than even a negative surprise, although all sectors and companies will not be affected in the same way. The so-called Olympic bet may indeed have been played by many, though this by no means suggests that it is yet over.