By Eleftherias Kourtalis
Resilience and defenses to international pressures, as well as signs of autonomy, the Athens Stock Exchange shows in recent days, showing composure and satisfactory trading activity despite the usual August rut, maintaining the gains of the previous period. At the same time, international houses with a barrage of analyzes are warning them of the end of the rally in global shares, which began in mid-June, and of a difficult winter of recession and precision in Europe.
However, it is clear that both the increase in political risk in Greece and the worsening of the energy crisis are causing concern, with Eurobank Equities recommending in its report to reduce positions in A.A. “If inflation proves persistent, the market will remain susceptible to fluctuations in risk perception, resulting from aggressive Fed and ECB surprises. On this basis, we expect a further deterioration in market sentiment and stick to our view that investors should take advantage of the recent rally by limiting their exposure,” the broker emphasizes. At the same time, he points out that, although until recently the upcoming elections were not considered to have a significant impact on the investment climate, now the political risk has increased after the revelations about phone surveillance, complicating the scene.
Depolas Investment Services also appears cautious, pointing out that the General Index has slightly outperformed the European indices recently, based on good corporate results so far and an excellent year for tourism, where this year’s growth has also been upgraded. “However, the negative impact on operating margins due to the conditions leads us to a more conservative stance, even though the valuations cannot be described as accurate,” adds Nikos Kavkas, head of the stock exchange’s analysis department.
The General Index has rallied 15% from July lows of 779 points, with the banking index leading the rise, jumping 33% over the same period. This was helped by the positive climate in the international markets, the positive reports of international houses mainly about the Greek banks but also about the prospects of the Greek economy due to the estimates for a new record in tourism, the new deals that kept the investment interest in X. A., the cancellation of the scenarios for early elections, as well as the upgrade of Greek shares in the FTSE/Russell indexes. The house added the shares of Alpha Bank, Eurobank, ELPE, Jumbo, Motor Oil, Mytileneos, National Bank, OPAP, Piraeus Bank, PPC and TERNA Energy to the Large Cap, while to the Mid Cap the shares of Aegean, EYDAP, Autohellas, Ellaktor, GEK Terna, ADMIE, Lamda, Quest, Sarantis and Viochalko, which until now were in Small Cap. Motodynamiki, Intrakat, Kri Kri and Plastici Thrace enter the Micro Cap and Attica Bank is removed, with all changes expected to take effect from the September 19 meeting.
And all this in the midst of the ECB’s aggressive tightening of monetary policy and the ever-worsening energy and inflationary crisis. “The General Index has managed to collect all the losses of the year and come out marginally positive. It is also the only market that has managed to do so for 2022, since the rest continue to record losses of 13%-21% “, comments Ilias Zacharakis of Fast Finance.
Waiting for the autumn roadshows
Whether this is a relief rally in the middle of the bear market or something more remains to be seen in the next period, when the investors’ summer break ends, while the roadshows begin, which will reveal the moods of the funds. Whether the climate and the buyers can be maintained in the A.A. at a time when the Eurozone is entering recession, even if Greece escapes it, it is a difficult question.
The General Index continues to climb in August and, barring a serious unforeseen event, it will be the second consecutive upward month after July’s +5%, as commented by Dimitris Tzanas, investment manager of Kyklos Exchange. Led by the banking industry and by rotation of index-weighted securities, it reached the approach of 900 units, with transactions maintained at relatively satisfactory levels after August 15th (over 50 million euros), with several foreign managers giving a vote of confidence to the prospects of the Hellenic Stock Exchange, while Goldman Sachs, Bank of America and Wood organize roadshows for Greek securities in the autumn, before HEXAE organizes its own in London in November. “Nevertheless, the worsening of the energy crisis, amidst the ongoing Ukrainian crisis, is bringing back the recession scenario, particularly for the European economy, causing negative effects on European markets, as the re-emergence of high inflation (at 8.9 % in July)”, warns Mr. Tzanas.
Important supports the GDP of the second quarter and tourism
However, the fact cannot be ignored that, while the prospects for the Eurozone and its largest economies are becoming increasingly bleak, estimates for the course of the Greek economy are constantly being upgraded and this can be a significant “cushion” for X .A. and the valuations of Greek stocks.
HSBC recently upgraded its estimate for growth in Greece this year to 6.5%, Wood estimates that Greece will be crowned growth champion in the Eurozone this year, putting Greek GDP growth at 6%, and UBS this week upgraded its forecast to 5.7%, from 4% previously. And the reason for these undeniably strong estimates is the amazing performance of tourism.
UBS emphasized that an important driver in its forecast for strong growth in Greece this year is the indications of a dynamic performance of the GDP course in the second quarter as well, after the excellent first quarter. With tourism receipts up 330% year-on-year in the second quarter, and coupled with a 31% year-on-year increase in tax revenues over the same period, GDP growth looks set to remain strong, with UBS estimating it will reach 6 .6% on an annual basis (the official figures are announced on September 7). The most important factor that made UBS more optimistic about the prospects of the Greek economy, however, is the amazing performance that tourism is expected to register, with revenues reaching 20 billion euros in 2022, against the initial forecast of 15 billion . and 10.5 billion euros last year, “beating” the 2019 record of 18 billion euros.
At the same time, a possible new upgrade of Greece by the rating agencies in the near future, something that will “remind” investors that the road to investment grade remains wide open, will provide additional support for Greek shares and in general the investment mood towards the country . It is noted that the next scheduled assessments of the houses for Greece for 2022 are the verdict of Moody’s and DBRS on September 16, the third assessment of Fitch on October 7 and the second assessment of S&P on October 21.
Concerns from analysts about international stocks
The strong correction with which stocks started last week is a sign of things to come, as the rally that the markets have recorded since mid-June not only has no chance of continuing, but is expected to reverse, with recent gains are extinguished and the losses to increase until the end of the year. This is the view of many international houses, such as Goldman Sachs, Bank of America, JP Morgan, Capital Economics and Morgan Stanley, which in a barrage of reports in recent days have warned of the risks surrounding the outlook for stocks.
Goldman Sachs predicts that, in the event of a recession, the S&P 500 index will fall to 3,150 points at the end of 2022, or almost 24% from current levels, while Capital Economics estimates that the US barometer of international markets will register another strong correction in the remainder of the year, plunging to 3,600 points, about 13% below current levels.
“The rally in stocks is unlikely to continue amid risks that include a recession and a fresh upside surprise in inflation, thus requiring the Fed to raise interest rates further and significantly,” Goldman Sachs strategists warned.
Capital Economics does not believe markets have turned away from the bear market. With inflation still uncomfortably high in most countries, he reckons investors are underestimating just how aggressive major central banks in general will still be. “We suspect this means equity valuations will remain under pressure for some time to come,” he notes.
For Europe, the outlook is even murkier according to Capital Economics, as the continued rise in natural gas prices and the possibility of them remaining extremely high means the Eurozone is likely to suffer a deeper than expected recession just a few weeks ago, while inflation will soar to 10% before the end of the year and remain high over the next two years. Energy prices for households and businesses will move much higher, putting pressure on real income and consumption, while high energy costs are also likely to hit investment, as increased costs and a weaker outlook for final demand will prompt firms to cut spending.
Also, Bank of America and JP Morgan warned that the rally in European shares appears to have come full circle. BofA expects the headwinds facing the global economy to prevail, suggesting further declines in Eurozone (to 43) and US (to 47) PMI at the end of the year as global PMI weakened to 47 .5 units. “We remain bearish on European equities, with our macroeconomic forecast suggesting an 11% decline for the Stoxx 600 by the end of the year,” he says.
“The relief rally we’ve seen in recent weeks in markets on lower inflation data and hopes of a soft landing is unsustainable,” HSBC said, noting that fundamentals haven’t changed that much since June and before the rally starts. Bank of England indicators point to increasingly broad weakness in the second half, with warning signs for the housing, consumption and labor markets all hitting red. So HSBC is sticking to its maximum underweight stance on international stocks, warning investors not to get carried away by the recent rally.