Ray of optimism for economy

Phaedon Tamvakakis, managing director of investment firm Alpha Trust, is guardedly optimistic about the prospects for capital markets and the economy as a whole. In an interview with Kathimerini, Tamvakakis said he believes that the coming years will be marked by stagnant indices, and he feels that it is only professional portfolio management that will make any difference for investors. Concerning the Greek economy’s convergence with those of the other EU member states, Tamvakakis warns that it is not as self-evident as sometimes presented; it will only be achieved through constant effort. He places special emphasis on the need for a continual improvement in productivity. Watching Alpha Trust’s recent moves, one might be tempted to think that you are more interested in foreign markets. Our main goal is to increase our share of the domestic market. The trouble is, the domestic market appears to be immobile. We are making efforts that, to a great extent, have added to our revenue – private banking, asset management for smaller portfolios – in a period of stagnation, and not just in the Greek market. On the other hand, we consider there are no merger prospects in our sector. Product changes At the moment, you are managing three portfolio investment companies and 14 mutual funds. Given the fact that market conditions change, are you thinking about updating some of the products you offer? Of course, we make changes in order to meet current needs. Market conditions change rapidly, and I believe you are doing a service to your customers when you tell them that conditions have changed and that they should no longer have high expectations from particular investments. Thus we recently changed one of our mutual funds: The Dollar Money Market Fund was renamed the Strategic Bond Fund and currently invests mainly in foreign corporate bonds. We are also considering changes to our portfolio companies. Looking at the yields of equity funds in 2001 and the yields of investment companies, one gets the impression that portfolio management is more effective. In an investment company, there is a given capital to invest, which allows you to undertake a long-term strategy. For example, look at investments made by institutionals in companies that were not listed yet. The great majority of these investments were tremendously successful. Average yields were impressive, although, of course, some investments did not do as well and some of these companies went bankrupt. However, shares in companies such as (electronics retailer) Germanos were acquired by institutionals at about 300 drachmas and the company’s IPO price, when it was listed, was 9,000 drachmas. I think this yield was worth the four years of waiting. This is a classic case where a portfolio management firm can take the risk of waiting two or three or even five years (before they can trade the shares). The investment firms have this luxury, which mutual funds do not. A mutual fund cannot place a large part of its assets in non-listed companies. The bourse has been declining for over two years. Do you believe such a long decline is justified? This decline in prices has its reason. The issue is whether you believe that you can hold on to your shares because you expect better days ahead or whether you think it is better to sell. I am afraid the answer to this dilemma is very difficult at this point. We have gone through a rough patch. On the other hand, I believe that there have been important changes in business people’s mentality. I believe business people are now more serious and dedicated to their jobs. Opportunities There is uncertainty over foreign economies and markets, though. Concerning the US economy, I believe that growth will be less rapid than predicted. The USA, technically, did not go through a recession, since we had negative growth for only a quarter. On the other hand, I believe that growth will not return to a 4-percent annual level any time soon. This recovery appears weak and, most likely, will stay so for several years. Several sectors have gone through a weeding-out process. I believe, however, this process will continue. We in Alpha Trust consider that the period we are going through is in many respects similar to the 1975-1982 period, when indices were relatively stagnant but the opportunities were there to make lots of money. This was a period where a good professional could achieve so much more than the mass of investors. How so? In a weak economic period, the focus and research on stocks is less intense. Brokerages, banks and others lay off personnel, with the result that research departments decline. So, a good professional analyst could make the difference. I can tell you without hesitation that there are several shares on the Athens Stock Exchange that will gain over 100 percent in the next couple of years. There are always opportunities, but you need to work hard to find them. You referred to a weeding-out process taking place in certain sectors in the United States. Do you think something similar will take place in Greece? There are several companies here who had the courage to say, «We made a mistake, we are taking our losses.» There are several companies that made unfortunate investments. Well, you pay for your mistakes and some will pay with the death penalty. But having weak competitors is a bad thing: it devalues markets. It is better for an economy to have one company close and another flourish, than having a number of sick companies infecting others with their disease. Because in the end, they all will be forced to close. The advent of the euro has accelerated certain economic developments. Do you believe the Greek economy and Greek companies are ready to operate effectively in a unified European economic space? I wouldn’t say that developments are being accelerated. We are a country of 10-11 million people, plus a few million tourists during the summer, who consume goods. In the consumption sectors – such as food, clothing and retail commerce – there will be a steady interest by other Europeans in entering the market. This is something we are experiencing already. However, there are sectors that will come under pressure. The opening of the first IKEA (home furnishings) store in Thessaloniki is an example. Its products are excellent and its prices much lower than those of local producers. Some sectors will be under pressure. I believe that if you do not have something unique you must have something cheap. However, not many people here have realized this. So, a restructuring of production appears inevitable. Are you confident about the future? Obviously, a restructuring of the economy is under way. It always happened, in every generation. The fact that our GDP growth is high is positive. The question, however, is whether growth will be sustained. That is, once the Olympics are past and EU funds have dried up, what will happen? As a businessman was telling me lately, the difference between the richest and the poorest EU member state is far smaller than the difference between the richest and poorest US state. And the US has been a single state for over two hundred centuries, with a single currency and a flourishing economy. This provides cause for some concern. So, our effort must be permanent and must focus on constantly improving productivity. We need continuous investments and lifetime education.