JP Morgan: What does it value for Greek stocks, because it buys Greek bonds – It remains positive for the markets, the 39 top picks
Her Eleftherias Kourtali
JP Morgan maintains its constructive stance on the shares as it estimates that the risk-reward profile remains positive, while presenting its 39 top picks from Europe. At the same time, it gives its estimates for the course of the profitability of the listed companies, seeing a double-digit increase of the Greek EPS, while opening a new trade in favor of the Greek bonds.
More specifically, as the American bank points out, it remains positive for the shares while it considers that it is premature to position oneself in the markets defensively in order to protect oneself from the possibility of a mistake on the front of the monetary policy. The slowdown in China is in its final stages, with prospects for improvement in the future, while credit concerns in the country are expected to remain manageable, says JP Morgan. With regard to COVID, it remains optimistic due to the significant gap between cases and hospitalizations, with significant new restrictions not likely to be so in both the US and Western Europe.
JP Morgan points out that there are indications that supply constraints will potentially outweigh their worst and there will be a easing of the increase in the price of electricity. The labor market, the main driver of consumers, remains strong and the US bank estimates that a positive surprise in the dynamics of the activity is more likely than a negative development.
After a significant recovery in bond yields since August, the curve has flattened again, he notes, and this could be interpreted as the market moving towards valuing a central bank policy error. However, as he emphasizes, this trend is not expected to last and although the volatility in the bond market will continue, however, there are significant opportunities such as those found in Greek bonds.
The Fed is starting tapering, but the other big central banks will stick to their soft policy, which will lead to steeper yield curves and real interest rates are likely to rise. In this context, the shares are likely to accept tapering without any disturbance and JP Morgan insists on outperforming cyclical stocks and sectors, recommending long positions in Energy, Banks, Automotive and Mining.
In this context, the American bank presents its top picks from the region of Europe, the following 39 titles:
In terms of the profitability of listed companies, JP Morgan points out that the third quarter results are strong, despite the slight slowdown in growth during this period. Of the 86% of S&P 500 companies that have announced results, 78% have won the ratings, while in Europe and Japan, of the 69% of the companies that have announced results, 64% have won these analysts’ estimates of profitability.
Regarding the Greek listed companies, JP Morgan estimates that profitability in 2021 will increase by 21.8%, in 2022 will move to 17.3% and in 2023 to 7.2%. Compared to the international markets, he expects an increase of EPS by 49% this year, while for 2022-2023 he estimates that it will move to 7.5% and 8.9%. For Europe, the increase this year is set at 56.4% while in 2022 it will move to 6.8% and in 2023 to 7.2%. For the US, the American bank is expected to increase profitability by 47.5% this year and slow down to 8.4% in 2022, while in 2023 it places the rise of EPS at 8.8%.
“Buy Greek bonds”
JP Morgan also opens new positions in Greek bonds by recommending long positions in 10-year Greek versus 10-year Portuguese as well as short positions in Italian bonds. And the reason is, as he emphasizes, that he estimates that the ECB will continue to support Greece after the end of the PEPP.
More specifically, as he notes, Greek bonds have underperformed since the day of the last ECB meeting with their spreads widening further during the recent sell-off. This relative undervaluation of Greek bonds, in its view, could be partly explained by the growing uncertainty about the ECB markets under QE after PEPP and partly by the weaker liquidity estimate.
The ECB’s statements at its November meeting initially raised uncertainty about what the central bank would do when the PEPP expired and therefore increased the risk of Greek bonds being excluded from QE after the PEPP. Given the comments made by Christine Lagarde after she said that there will be additional asset purchases after the PEPP, and her remarks at the ECB meeting in September that the situation in Greece will be taken into account in the post-PEPP policy decision , JP Morgan estimates that there is a strong possibility that the purchases of Greek bonds by the ECB will continue after the end of the PEPP.
According to JP Morgan’s baseline scenario, the ECB will announce a new dossier after the € 200-250 billion PEPP that will “run” for a year alongside the classic QE, the APP.
So, remains generally constructive for Greece, given the attractive valuations, its view on the inclusion of Greek bonds in post-PEPP markets, the constructive macroeconomic outlook and the stable political landscape. In the Greek curve, he estimates that bonds with a maturity of 8-10 years are attractive compared to other securities in the region and thus recommends long positions in 10-year Greek bonds compared to 10-year Portuguese bonds, while he also finds attractive the placement in Greek 10-year bonds against Italian bonds.