Blue chips will drive the Athens Stock Exchange higher, says Georgios Papoutsis, general director of the management company Diethniki Mutual Funds, a member of the National Bank of Greece group. In this interview with Kathimerini, he also suggests that mid-cap and small-cap companies also offer several good investment opportunities. Diethniki is the second largest in its sector in Greece, with a market share of 26.9 percent at end-December. It provides a total of 21 mutual funds, with its total managed assets reaching 8.5 billion euros. The ASE ended 2004 with a smile, while most mid- and small-cap stocks had considerable losses. What can this market split be attributed to? In 2004, the Greek market showed a significant rise (general index up 23.1 percent and FTSE/ASE 20 up 32.3 percent), with higher yields than most European stock markets. The differentiation of yields among stocks was not due to their sector classification but depended on their capitalization. The Greek market participants have changed the last couple of years, as interest shifted from private investors to big institutional investors from abroad. The upgrade of the Greek market into the most developed ones, the creation of new futures and options products and the coverage of large Greek companies by international rating agencies paved the way for the entry and strengthening of the presence of foreign investors in the Greek market. Many blue chips have created the appropriate infrastructure to communicate – transparently and effectively – their business plans, strategy and financial results. In this way, a climate of communication and trust has been built, as required internationally by institutional investors. On the other hand, mid- and small-cap companies (with a few exceptions) failed to attract investor interest, either due to poor presentation or the lack of a clear investment strategy, because of their small place in the market, or even for the lack of a clear distinction between ownership and management. Do you discern investment opportunities in small- and mid-cap companies? The definition of small-cap and mid-cap companies in the Greek market is not the same as that abroad. The capitalization of a medium company abroad is less than 2 billion euros, while in the Greek market this ranges between 200 and 350 million euros. We do discern investment opportunities in these two categories, particularly for firms with a steady rise in sales and profits, good dividends (3 percent), a light loan burden, effective management, as well as belonging to sectors with momentum and having the potential to export. I believe that small-cap and mid-cap companies fulfilling the above conditions are about 10 percent of all listed companies. Of course, there may be other firms, too, which may have not announced their plans yet to attract the interest of investors. Is the persistence in purchasing blue chip shares justified? Do the banks’ evaluations worry you? I think the rise of the index is justified if we consider the relatively increased transaction ability of the stocks comprising it, the existence of products such as derivatives and rights on indices and securities, as well as the policy and the effective presentation of business plans and the results of the companies that compose it. The banking sector, which represents more than 50 percent of the FTSE/ASE 20 index’s capitalization, it seems, will continue to have good results in 2005. This is justified by the high rate of credit expansion, the application of new funding means, the control of operating costs and the positive performance of subsidiaries and affiliates abroad. The Greek banks’ profit growth rate by share is expected to be about 21 percent for 2005 and 2006, almost double the European one. This margin illustrates that domestic banks are deservedly valued compared with those in the rest of Europe. What is your forecast for the new year? What will be the decisive points for the ASE’s course in 2005? We believe the Greek market will continue to be positive in 2005, but this is also related to the course of international markets. The deciding points will be: the application of International Financial Reporting Standards, the post-Olympic effect (tourism, investment opportunities and construction activity), the plans for restructuring and rescuing companies, the reduction in the business tax rate, the privatization of state companies, the reinforcement of company balance sheets, the increase of company profits per share (9 percent for general index stocks and 14 percent for FTSE/ASE 20 index stocks) and the distribution of some of it to shareholders – we forecast a 3 percent yield based on current price levels. All in all, we forecast an 11 percent rise for the general index in 2005 and a 13 percent rise for the FTSE/ASE 20 index, an assessment including dividends in both cases. Despite the good market picture private investors seem to be avoiding buying shares. How do you explain this? The last few years the majority of Greek investors saved by investing capital in deposits and government bonds, that is, in short positions. The environment of big nominal interests disappeared with the advent of the euro, and the stock market crash (in 2000-2002) made life more difficult for the entire investment community. Greek investors faced huge income and capital losses, mainly owing to their portfolio structure and the quality of their investments. In 2003 and 2004, despite the rebound of stock markets, the climate of reservation by the majority of private investors remained. Even today most investors either stick to low-liquidity deposits/products or maintain their share portfolios unchanged. Consequently, the average Greek investor has reaped no capital gains either from bond or stock positions the last couple of years. Curiously they also avoid equity mutual funds. Why? For most investors, the reasons mentioned also refer to equity funds positions. A large number of investors chose equity funds in 1999 and 2000. The three-year fall of the stock market and the lack of structure or change of portfolios in investment categories (stocks, bonds, cash) brought large losses of capital. Equity funds were unfortunately seen by many investors not as an investment category where only part of their portfolio would be invested, but as a «quick» investment for high yields. With the decline of equity mutual funds, the majority of Greek investors avoided all investment categories, even balanced mutual funds. How do you see the investment behavior of the average investor? Is there any improvement? The National Bank of Greece, with its large branch network and experts in investment products at most branches, is a quite good indication of the average investor’s behavior. An effort has been made the last few years, with improving results, to inform clients about all products (risk, length of investment and expected returns) and with the presentation of specially formed investment portfolios for clients. The great majority of clients invest in balanced mutual funds which have greater yields than depository products, and a smaller percentage create a portfolio by investing in more than one mutual fund category. It is true that in the last two years the positive course of stock markets has helped to reduce the fear of investors, making attracting clients and the presentation of products easier. Yet, it is still hard to find among the average Greek investor a typical investment portfolio, which would have, for instance, 10 percent in cash, 50 percent in bonds and balanced mutual funds, and 40 percent in shares and equity funds, representing an investment philosophy and education. What are Diethniki’s plans for 2005? For Diethniki, 2005 is «clients’ year.» The company’s strategic planning has the client at the center and will focus on the constant enhancement of products and services offered. For the new year, the company’s plans are based on three pillars: First there will be emphasis on the quality management of mutual funds and the continuous improvement of their yields, so that they remain above our competitors’, and above their own reference indices. Also during 2005, the Delos Funds will be evaluated by large international rating agencies so that the public can compare and choose with full transparency regarding management quality. The second large step we are planning is presenting the investing public with the new NBG SICAV products, recently developed by our group in Luxembourg. These are fully compatible with new European directives and contain a great range of modern investment vehicles, such as Fund of Funds and Capital Protected Funds, forming the new generation of mutual funds in Greece. Finally, our aim is to apply a special methodology toward providing mutual funds based on the needs, objectives and profile of investors. The company is now focusing on quality sales, designing special portfolios of selected mutual funds with basic parameters, such as yields, variability etc, corresponding to the individual character of each client.