June 15, 2012
The debt-crisis drama playing out in Greece will take another turn on Sunday, when Greeks go to the polls to vote once again for a new government – and to essentially determine whether the country will accept the terms of a European bailout and stay in the Eurozone or not. With the election drawing near, stocks on the Athens Stock Exchange soared 10 percent on Thursday and nearly 2 percent more on Friday as investors bet that Sunday’s vote will result in Greece staying in the Euro under a government willing to stick to the terms of the bailout plan. Even after the surge, though, the Athens Stock Exchange Index has lost more than 17 percent in 2012 and nearly 55 percent over the last year. Since late 2007, the index has been decimated, dropping from above 5,000 to its current level of 560.
Through the recent turmoil, Socrates Lazaridis, the executive chairman of the Athens Exchange and CEO of the Hellenic Exchanges Group since October 2010, has continued to encourage optimism and tout the investment opportunities he sees in Greek-listed companies. The Fiscal Times spoke with Lazaridis last week about what the election might mean for the Greek market and investors. Edited excerpts from our interview:
The Fiscal Times: The Athens Composite Share Price Index is off about 30 percent this year [18 percent, after this week's gains]. What do you think it will take ultimately for investors to have confidence to come back and buy Greek stocks?
Socrates Lazaridis: Everybody who has a feeling for how the markets are working knows that there is always uncertainty about the economic environment. We have a level of market cap to GDP which is around 10 percent, which is 5 to 6 times less than the average European [market]. And I strongly believe that this is a very important signal of the opportunities that exist in the Greek stock market. Understanding, of course, that uncertainty until the elections is giving opportunities [to stay away] for those that are risk averts.
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TFT: The thing is, you also mentioned late last year or early this year that the market cap to GDP ratio was relatively low. And yet it’s gotten even lower because people have a lack of confidence in investing in Greece at this point, or at least concerns about the risks associated with it. Is that going to be resolved with the elections? Do you expect the elections on June 17 to create enough certainty to help draw people back to the market in Greece?
SL: I must not predict what will happen with the elections, but my understanding is that we have a stock market here where the traditionally used indices – like the market cap to GDP, or the liquidity or the presence of international investors – are giving a sign that there are opportunities in the market. What I can say is that, in terms of market cap to GDP, we are an attractive market. In terms of foreign presence, 50 percent of our market capitalization is owned by foreigners. In terms of velocity, we are at the same level – we didn’t realize any decrease of the velocity or of the liquidity of the market. The trading volume remains sustainable. So we have a liquid market with opportunities.
TFT: You mentioned foreign investment, but I want to ask about domestic investment too. With unemployment at almost 22 percent and with all of the other challenges Greece faces, Greek people are going to have less money to put into stocks. How does that affect the Athens Exchange? You will be more reliant over the next couple of years at least on foreign investment.
SL: Yes, clearly and truly you are right. We believe that foreign inflows will dominate the growth of the Greek economy. But I have to mention that while in 2010 we have had about 1 billion in outflows of foreign investments, this figure has been decreased to 260 million in 2011 and it is now about 60 million in 2012. This is giving a clearer path for Greece. It is also a signal that we are going for a rebound.
TFT: So you believe that once there’s more clarity, the outflows will stop and the inflows will start?
SL: Exactly. I can see the trend – three years decreasing trend of outflows.
TFT: Are you concerned at all about additional companies delisting from the exchange? Do you think that the trend is going to be stabilizing?
SL: There is a trend that is bringing some of the smaller companies outside the stock exchange, which provides an equilibrium [if you consider] the tremendous increases of listings that took place in the latter part of the previous decade, early 2000’s. I can say also that most important weakness that we see in our market is the market concentration, which is double the European average. But we are hoping that this can change from the privatization program [under which the government has been selling off assets]. And on the other hand, by the increasing influence stock exchanges have internationally as capital-raising mechanisms.
TFT: Since you mentioned the privatization program, Costas Mitropoulos, the CEO of the Hellenic Republic Asset Development Fund said recently that the likelihood of any additional privatization this year was very, very low. Is that a problem or is that good thing given that the further sales in the current environment might not get the kind of prices that the government would want?
SL: The most important issue about privatization is not just the privatization process, but the multiplicative effect it will have to the total economy through additional investments that will follow privatization. So the issue is not just the amount of privatization that we will implement as a country year after year, but how well this privatization will be prepared and what additional multiplicative effect it will have for the economy.
TFT: I know you have said before that discussion of a Greek exit from the Eurozone isn’t constructive. But don’t you need to prepare and don’t investors need to have some sense of what a transition like that could mean for the exchange and for the listed companies?
SL: Yes, but at the time we don’t have any type information about how this happens – only fear and uncertainty create a discussion. The point is that specific decisions are needed in order to go outside the Eurozone. If we are discussing without having a clear view of how this decision will be taken, we are just creating uncertainty without real vision.
TFT: Are you frustrated – or maybe I should say, how frustrated are you about the time that it has taken to resolve the debt crisis in Greece both in terms of the elections and in terms of some of the policy decisions that have to be made?
SL: Well, my little experience in terms of crisis management is that when you have to take decisions, you don’t have to evaluate the past but you have to understand what is the problem and how can you resolve it. So I don’t want to make comments on what was wrong in the past, but to, let’s say, be optimistic. I mean, everybody has the knowledge now to make the right decisions.