About the author: Patti Domm is an Emmy-award winning financial journalist.
By many measures, Greece has turned itself around and has become a bright spot in Europe.
It’s hard to blame investors who wonder whether its success can be trusted. Greece’s traumatic debt crisis more than a dozen years ago left many burned.
As a result, Greece’s more recent resurgence has gone under the radar for some. But Athens and its investor allies make a convincing case for optimism.
Greece’s growth is outpacing the eurozone this year at about 2.4%. Athens projects even higher growth of 2.9% next year, plus a primary surplus of 2.1%.
Tourism is booming. Data from the Greek Tourism Confederation shows international air arrivals jumped 11.5% over last year through October, on pace to hit a record.
Greece’s stock market is already up 40% so far this year, and some major investors expect it has more room to run. Hedge fund billionaire John Paulson, a long-time investor in the country, is bullish and looking for more opportunities.
“One measure is the value of the stock market to the total economy. It’s about 30% in Greece today. The previous peak was 80%, and the European average has been 80%,” Paulson said.
Greece should benefit in the next year from the same trends that will help other economies—lower inflation and anticipated central bank rate cuts.
Another major plus: S&P Global and Fitch recently upgraded Greece’s debt to investment grade status for the first time in 13 years. No longer shackled by junk status, Greece is likely to see an influx of new investors in 2024.
The ratings firms gave much of the credit to the center-right Greek government of Prime Minister Kyriakos Mitsotakis. He was resoundingly re-elected in June, so the positive fiscal approach will likely stay in place over the next four years.
Greece’s debt-to-GDP ratio hit a high of 205% in 2020. Mitsotakis has brought it down, and pledges to continue.
“We forecast the debt ratio will fall to 160.8% this year and 141.2% in 2027 from 171.4% in 2022,” said Fitch in its Dec. 1 upgrade.
Those figures are still extremely high. Nonetheless, Fitch says Greece is among the best performers of any of its rated sovereigns.
Greece used a European Union mechanism to swap its debt for long-duration, low-interest debt. That has made it much less sensitive to higher interest rates than other economies, says Athanasios Vamvakidis, global head of G10 FX Strategy at Bank of America
“It’s a developed country that had an emerging market crisis,” said Vamvakidis. Now it’s catching up.
Greece’s economy will also continue to benefit from European Union structural and recovery funds, created during the pandemic. Greece expects to receive more than 55 billion euros by 2027 ($60 billion), and some economists expect that could contribute up to 1 percentage point in growth annually.
The Greek government also anticipates private investment will rise by about 15% next year, more than double this year’s pace.
Athens’ emphasis on attracting business investment was clear at a recent New York conference on Greek investment, sponsored by Capital Link. Investors, bankers, and government officials gathered at the gilded age era Metropolitan Club were largely bullish on the Greek outlook.
“We like to say we went from red tape to red carpet to make it easier for investors to come in,” said Marinos Giannopoulos, CEO of Enterprise Greece, a Greek agency focused on investment and trade.
The success of recent debt and equity offerings, as well as the ratings upgrades are expected to lay the groundwork for a new wave of investors. Goldman Sachs, for instance, shepherded the recent sale of a stake in the National Bank of Greece. The 1.5-billion-euro ($1.6 billion) transaction drew in more than five times more demand than it was seeking.
“It’s clear that political stability and strength in the Greek economy, the ratings trajectory, and the successful placement of recent deals have driven a sea change” in investor interest, said Beth Hammack, co-head of the global financing group at Goldman Sachs.
Hammack told the conference there’s been an expansion in the investment universe to include more long-only and fundamental investors.
“We’re also seeing a transition away from emerging market investors to more developed market funds,” she said. “We believe these trends have further to run.”
Paulson agrees. “To me it looks like we’re just at the beginning of the transformation and turn around in Greece,” he told the Capital Link conference.
Greece was its own worst enemy during the crisis years. “They finally got it right,” said Vamvakidis. If something goes wrong in the next couple of years, investors believe it’s more likely to be due to an external catalyst than one of Greece’s own making.
Guest commentaries like this one are written by authors outside the Barron’s and MarketWatch newsroom. They reflect the perspective and opinions of the authors. Submit commentary proposals and other feedback to [email protected].
Read the full article here
