Government hopes social security funds will boost flagging exchange

The government is apparently hoping to give the flagging Athens Stock Exchange (ASE) a badly needed boost by inducing social security funds to invest a greater portion of their reserves on the bourse. At a broad, high-level meeting chaired by Economy and Finance Minister Nikos Christodoulakis on Wednesday, it was decided to raise by 3 percent the percentage of reserves which funds can invest in shares and real estate, to activate a mutual fund company set up by the Social Security Foundation (IKA) and the Farmers’ Insurance Fund (OGA), and to upgrade the membership of the committe supervising the investment behavior of funds with the addition of the deputy governor of the Bank of Greece, the deputy chairman of the Capital Market Commission (CMC), top ministry officials and unions’ and employers’ representatives. Attendants at the meeting included Labor and Social Security Minister Dimitris Reppas, Deputy Governor of the central bank Panagiotis Thomopoulos, IKA Governor Miltiades Nektarios and CMC Chairman Stavros Thomadakis. The Labor and Social Security Ministry will introduce an amendment raising the part of reserves which funds can invest in shares and real estate from 20 to 23 percent. According to estimates, the amounts which the measure will release from compulsory deposits at the Bank of Greece is around 350 million euros, of which 40 percent is likely to go to real estate investments and 60 percent to the capital market. The central bank is estimated to hold in a joint account about 7.5 billion euros of reserves of social security funds. According to an initial plan, the IKA-OGA mutual funds company will create two funds, one balanced and one bond, with assets totaling 1.76 billion euros. The company may be activated as early as next month. The fund supervisory committee will have to express an opinion on investment proposals within five days, otherwise the funds will be free to implement them. Schroder Salomon Smith Barney (SSSB) welcomed the measures, saying it would have a positive effect on the market. It estimated that the amounts to be channeled into the bourse would amount to about 1 percent of ASE’s total free float. SSSB said, however, that the benefits would not accrue in the short-term as the market had expected the government’s plans, and due to the time consuming procedures which the funds have to follow in order to invest on the bourse. What is really needed is an acceleration of changes from public to private administration of funds for a more active management of their reserves. Certain critics of social security funds investing in stocks argue that it would amount to a government invervention in the market. Other unconfirmed reports said labor unions are on the whole unfavorably disposed on the issue. The planned merger of National and Alpha banks is causing some concern among stock market circles, as it is likely to force institutional investors to shed shares of the two. Indeed, according to some sources, such moves have already been made and they are partly related to the continued stagnation of the Athens bourse. The merger will result in a consolidation of the positions which mutual funds and closed-end investment funds have in the two banks which are likely to total more than 10 percent of their portfolio assets. According to standing legislation, institutional investors are forbidden from placing more than 10 percent of their assets on any single stock. The investment funds faced with such a problem essentially have two options: either to gradually reduce their positions in the shares of the two banks, or to wait until the merger is completed and then liquidate that part which is in excess of 10 percent. Sources say the Union of Institutional Investors has considered the matter at length and proposals put forward include the introduction of a special legislative provision raising the 10 percent ceiling. The proposal, however, does not seem likely to be adopted while a number of fund managers believe the problem is relatively limited and concerns only a small number of portfolios. National and Alpha rank first and third respectively in terms of market capitalization among Greek banks. The Banks index had the third worse performance among sectoral indices of the Athens bourse in 2001.

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