ASE may be in for another dive
Is it possible for the Athens Stock Exchange composite index to fall from the 2,200-point level, where it’s been lingering for a while, to 2,000 points? Yes, it is! If the market continues to operate under the weight of pessimistic forecasts, the estimates about lower earnings, the government’s delays and half-baked solutions, it is. A feeling of gloomy disappointment never helped any market. What finally happened should not have happened. Greece is not following the rest of Europe in its recovery. The estimate that the Greek economy will grow 3.5 percent or thereabouts in 2002, higher than the EU average, may be correct. We should not forget, however, that a large part of this growth is a result of investment in public works and the boosting of demand through inflationary pay rises and an increase in household indebtedness. What Greece’s economic growth lacks is entrepreneurship. That is, we lack dynamic, quality firms. Without them, growth is dependent on external factors and, worse, it is not sustainable. Thus, the relatively high economic growth we are experiencing is not creating the conditions for future higher growth. Of course, not everyone agrees with the forecast of a further drop in the market. Professor Stavros Thomadakis, for example, the chairman of the Capital Market Commission, insists that the fundamentals of the Greek economy are sound. Whatever the reasons, real gross domestic product is rising, the macroeconomic environment remains stable, inflation is at manageable and historically low levels, he reminds us. Thomadakis observes that the market is going through a period of adjustment and that such a period makes it hard to evaluate the actual worth of shares. «Earnings before interest, taxes and amortization are at about the same levels,» he remarks, reminding us that we must make a necessary «distinction between operational and pretax results.» The high amortization of enterprises are due, he says, to considerable investments that took place in preceding years. It was a natural thing for firms to grab the opportunities offered by a rising stock market in 1998-99 and increase their capital, thus «creating a cushion for lean times.» The positive result of this, says Thomadakis, is that the ratio of own capital to borrowed capital in Greek enterprises is very favorable. On this basis, they can borrow easily and continue financing their existing or future investment plans. Preliminary analyses conducted by the Capital Market Commission show that the cash-flow data to be published in July will show a restructuring, not worsening, of corporate accounts. Thomadakis is not the only one who maintains this kind of optimism. Managers in some of Greece’s biggest enterprises, who have seriously thought about their adjustment to the increasing competition within the eurozone, remark that the drop in stock prices and the even bigger drop in demand for shares may create difficulties but not insurmountable obstacles. Moreover, the restructuring of their capital portfolios, done in close cooperation with banks, is a natural process. Even if we take the above remarks at face value, we cannot ignore the problems created by the delays in structural changes in the economy (privatization, further opening of markets, a deregulation of the labor market). These delays are seen, for example, in areas such as social security and tax reforms. The slow pace of the government’s response and, in some cases, its backtracking from previous positions, are costly to the economy. It would not be wrong to say that the big enterprises are now more or less independent of, and immune to, the government’s lack of determination and its backsliding. Indeed, they have no reason to fear that their business will be greatly affected by political developments. Most of the other enterprises are vulnerable, however. These constitute the majority of ASE-listed companies. The more mergers and acquisitions are delayed, the more the climate of stagnation on the ASE will worsen. It is this climate, suggested by but not directly reflected in the ASE’s composite index, that drives out investors. What has been said above does not mean that the Greek capital market is of no interest at all. If, as stock market officials assure us, foreign investors are returning, the index will not fall below 2,000. Unless these foreign investors bet on an even cheaper market, thus repeating the profit cycle they achieved by entering the market first, right after the drachma devaluation of March 1998, and exiting first during the hot summer of 1999 and before the bears moved in.
