Total market capitalisation (Dec. 2019)
Number of corporate bonds listed on the ASE (Oct. 2019)
Number of listed equities (Dec. 2019)
Gains in the Athens bourse’s General Index in 2019 (5.55% in H2 2019)
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When it comes to investing, timing can be everything. The last few years have not been easy for investors in Greek financial assets. But the next few have the makings of a completely new era for Greek companies, and Greek capital markets.
It is a case of out with the old and in with the new.
Reflecting the transformation now taking place in Greece’s economy, following the country’s recent financial crisis, the ATHEX Group – the parent company of the Athens bourse and related exchanges – has been preparing for the future. From corporate bonds issues to coaching innovative companies, the group is a window onto the new economy emerging in Greece.
During the crisis, Greece’s blue-chips – like the Big Four banks – saw their market capitalisation slump as investors fled the Greek market. But since then, a new focus on exports and innovation has shifted attention to mid-cap stocks in those sectors.
Case in point: since 2010, based on the bourse’s performance up to December 2019, the bank-heavy General Index was down almost 50%. But over the same period, the export-oriented FTSE/ATHEX Global Traders Index Plus was up 95.85%. And the FTSE/ATHEX Mid & Small Cap Factor Weight Index rose a very impressive 244.19%.
This new focus is also reflected in trading activity. In 2018, some of the most active trading was in the mid-caps – representing Greece’s new growth sectors – such as a leading marble exporter, a hi-tech company, and a Greek food producer, to name a few. Some of them may represent the blue chips of the future.
With the Greek economy showing steady signs of recovery, Socrates Lazaridis, CEO of Athens Exchange Group (ATHEX), wants to increase the visibility of companies listed on the Athens Stock Exchange, attract new listings, improve liquidity, and further develop the corporate bond market.
“As a result of the reforms that were implemented since the start of the crisis, and the efforts of companies to export to new markets with the collapse in domestic demand, the Greek economy has become significantly more outward-oriented,” says Bank of Greece Governor Yannis Stournaras. “The economy is already reorienting towards exportable goods and services.”
But the future still lies ahead. In the meantime, efforts are being made to boost the still-low turnover and valuations that remain a legacy of the recent crisis.
“Looking ahead, ATHEX has put in place a range of strategies to make securities more competitive and to strengthen the market,” says Socrates Lazaridis, ATHEX Group Vice Chairman and CEO. These include promoting the development of the corporate bond market, new investor roadshows focusing on small and mid-cap stocks, promoting the use of market makers, supporting innovative small- and medium-sized enterprises, and implementing a new plan to improve corporate transparency.
Another initiative, albeit in a different area, is the recently established Hellenic Energy Exchange. Here, ATHEX Group is hoping to tap into Greece’s newly liberalised energy market and has an eye on the country’s emerging status as a regional natural gas hub. Some of these initiatives are already paying dividends. But the real payoff will come in the near future, when Greek companies return to the equity market to raise share capital.
“There are several potential ‘game changers’ for Greek stocks,” says Lazaridis. “If I were to identify the most important one, at this point in time, it would be new listings. Over the past decade, the lack of macroeconomic stability, combined with entrepreneurs’ perception that valuations were low, brought the initial public offering (IPO) market to a standstill. Given that the economy appears to have entered a period of relative stability, new listings should gradually start taking place as corporations have the opportunity to improve their debt-to-equity ratios through an increase in equity.”
In an effort to lure new companies to the market, ATHEX launched Roots at the end of 2018, a pre-IPO programme that helps innovative small and medium enterprises (SMEs) achieve investment readiness. The programme combines advisory and training opportunities with access to an international network of experts. It is designed to help SMEs accelerate their growth and access financing opportunities through the Greek capital market by mobilising key players within their ecosystem.
Roots is offered in cooperation with the American-Hellenic Chamber of Commerce and with the support of strategic partners like the National Bank of Greece, cement producer Titan Cement, and the property and hospitality firm Temes.
In March 2019, the Athens Stock Exchange, in partnership with the Chambers of Commerce in Heraklion and Chania – Crete’s two largest cities – held informational events on the Roots programme for local businesses on the island. Hoping to capitalise on the island’s emerging tech and export sectors, as well as its fast-growing tourism industry, among others, ATHEX is banking on the promising growth prospects of up-and-coming Cretan enterprises that will one day turn to the Athens Stock Exchange to finance their expansion.
That hope is not limited to Crete. In the last few years, as part of Greece’s ongoing economic transformation, the country has become home to a vibrant start-up scene. Several Greek technology start-ups have succeeded internationally, while others have been acquired by major multinationals like Samsung and Daimler.
Greece’s life sciences industry has also been developing at a fast rate over the last few years. And Greek companies are competing successfully in the international pharmaceutical markets, with a strong shift towards research and development, innovation, and marketing. There has also been an increasing number of foreign companies, such as electric car maker Tesla, that have set up R&D centres in Greece.
International industrial conglomerate MYTILINEOS’ successful strategy for growth has been reinvestment in core operations, continued cost efficiencies, and leveraging synergies to yield strong cash flows, says Investor Relations Director, Cleo Lymberis.
A new European Union and Greek government-backed investment fund, Equifund, has been launched with the participation of private investors, and as much as €400 million is projected in venture capital investment through the fund by 2023. According to National Bank of Greece estimates, the value-added of Greece’s information technology sector alone could top €1.8 billion in 2020.
Those new and emerging start-ups represent a future supply of new listings. But the benefits they bring about go beyond this. As Greece transforms into an export-driven economy, there are a large number of small- and medium-sized, family-owned, and cooperative businesses that are fuelling the country’s three-year-long export boom. Many businesses operate in sectors where Greece traditionally enjoys a comparative advantage including industries like food and beverage products, construction materials, clothing and textiles, and cosmetics and natural beauty products. Now, they are taking off.
“Today, Greek companies are trying to take decisive steps to exit the crisis while supporting the transformation of the Greek economy into a new development model, one based on investments and foreign markets, while producing more internationally tradeable goods and services,” says Constantine Michalos, President of the Athens Chamber of Commerce and Industry.
To draw investor attention, in 2018 ATHEX introduced two annual roadshows in Greece: the Mid Cap and the Small Cap Conferences. Those conferences complement the group’s traditional annual roadshows in New York and London and are aimed at increasing the visibility of listed companies.
“The aim of these roadshows is to increase awareness of fundamentally sound companies that have not been adequately represented in the portfolios of local institutional investors,” says Lazaridis. “We have already started seeing results in the form of increased contribution of these companies to total turnover.”
Promoting the use of market makers has also helped turnover. The contribution of market makers in daily turnover more than doubled in 2019, from a low of just 4.6% in 2014. At the same time, ATHEX is also pushing for new tax incentives for individuals investing in listed SMEs, either directly or through collective investment schemes and funds.
Meanwhile, many Greek corporates have been turning to the bond market to raise financing. With valuations on the Athens Stock Exchange still low, that makes sense. And ATHEX has been actively promoting the development of the corporate bond market.
In 2015, in cooperation with the Hellenic Capital Markets Commission, the Group proposed a set of best practices and suggestions to remove barriers and restrictions for the issuance and listing of corporate bonds directly on the Greek market without the use of foreign special purpose vehicles (SPVs). The move proved successful: it gave companies with good debt-to-equity ratios the ability to offer bonds to local investors.
Over the last few years, the market has shown impressive growth, as evidenced by recent issues from leading corporates like energy and construction firm Mytilineos, which raised €500 million from investors, and national carrier Aegean Air, which recently tapped the market for €200 million.
Bonds became a popular financial instrument because undertaking an IPO during the years of the crisis, where there was high volatility, was a difficult decision for prospective issuers. Currently, there are 14 listed corporate bonds on the ATHEX market that raised €1.37 billion from investors in total.
That also mirrors the trend across Europe, where there has been a steady increase in the issuance of corporate bonds. One clear lesson from the European debt crisis was the continent’s overreliance on pricey bank lending and relatively underdeveloped corporate bond markets compared with the U.S. Over the past few years the EU has worked to change that, and, according to the European Commission, the issuance of corporate bonds in Europe was twice the level of 2007 by end of year 2019.
Greece has now put the debt crisis firmly behind it, and the economy is on a strong recovery path. In the process, Greece’s economy – and its corporate landscape – are changing. So, if timing is everything in investing, it is time to watch this space.
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