Hunting for foreign capital is not a job for amateurs

Many Greek brokers, analysts and fund managers seem to believe that the Athens bourse has broken ranks with other European bourses since the beginning of 2002 and has been following its own course ever since. The fact that the Athens Stock Exchange (ASE) has been outperforming major European bourses in the last few weeks has done little to change this view. Nevertheless, all market participants agree that attracting foreign funds should be a top priority for all interested parties, including the listed companies, if the local equity market were to do better in the future. Despite some progress in attracting foreign funds, mainly directed at a handful of large-capitalization companies included in the MSCI-Greece index, most listed firms have little to show on that front a year after the Greek stock market was upgraded to the developed markets league by Morgan Stanley Capital International (MSCI). Central to their failure has been their inability to grasp the importance of investor relations, a term still confused with public relations. The most recent official figures show foreigners holding a greater proportion of large Greek companies composing the blue-chip FTSE/ASE-20 stock index than they did prior to last year’s market upgrade. No breakdown of foreign funds is available. But it is highly likely that the observed increase in foreign ownership of Greek companies is due both to the rebalancing of MSCI indices, used by foreign institutional investors as benchmarks, and the resulting increase in the Athens bourse’s weight in the same stock indices as well as the trimming of underweight positions, established initially by developed market passive funds upon the local bourse’s entry into the developed market league last year. This conclusion is backed up by observed investment patterns and the claims of high-level company officials in promising high-growth mid-caps, such as the Maillis packaging group, who say foreign funds now account for a much lower proportion of their stockholders’ base that they did on May 31, 2001. Under normal circumstances, active foreign funds should be more interested than passive funds in smaller companies, with little or no weight in the MSCI-Greece index. Active funds try to beat the benchmark stock index through superior stock selection and market timing whereas passive funds simply try to replicate the returns of the benchmark indices. Pundits have long claimed that the small size of the Greek stock market and of most listed firms, insufficient liquidity and lack of corporate transparency demonstrated by the non-adoption of International Accounting Standards have all contributed to foreign investors’ ignorance of likely opportunities in the local stock market. Although all these factors have had a negative contribution to the quest for foreign funds, none can dispute the fact that most listed firms have done little to sell themselves effectively abroad, especially to foreign mutual funds and pension funds. To be fair, an increasing number of listed firms seem to realize the need to market themselves to the foreign investor community and some have set up investor relations departments usually headed by an investment relations officer (IRO). However, it looks as if most Greek companies ignore the requirements of the particular position and rush to fill them with non-qualified individuals. Instead of hiring individuals with a strong personality who combine market, sector, company and even some legal knowledge, and have some experience in portfolio management, public relations and marketing, they attempt to fill the IRO positions with individuals whose most important asset may be their relationship with the owners or the top executives of the company, or analysts or brokers simply trying to flee the shrinking brokerage business. These people, as a whole, fail to impress foreign institutional investors. Some so-called specialized IR firms have tried to fill the void and win over some corporate accounts only for the listed companies to find out sooner or later that they are not effective in doing their job. Moreover, the Athens bourse’s requirement that listed companies do at least five roadshows per year has prompted the hasty establishment of new specialized firms which propose to listed companies to organize their roadshows for a fee. Market participants familiar with the practice say the specialized firms organize group presentations of three, four or five listed companies at a time in Athens and other Greek cities. In some cases, the group presentations are sponsored by third parties who cover the costs of the event. The ineffectiveness of these group presentations has made the same market participants talk of a «costly farce.» It has also enraged the top executives and major stockholders of some small listed companies, who use tough language in private conversations. Nevertheless, the need to attract foreign funds in order to breathe some life into the sluggish Athens bourse remains a top priority and the IR departments should be organized in such a way so as to play a leading role to that extent. Adopting voluntary and involuntary disclosure policies and engaging in premarketing and proactive roadshows abroad should be part of the listed firms’ «tool kit.» Failing to do so in an increasingly competitive landscape for international institutional funds may result in stock underperformance, which could possibly hurt the firm’s image among shareholders and on aggregate undermine the Athens bourse’s future.