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World-Topping Greek Markets Await Big Vote Amid Hope for Change

World-Topping Greek Markets Await Big Vote Amid Hope for Change

(Bloomberg) -- The election of a pro-business government in a snap vote in Greece this weekend is expected to extend an outstanding rally in the nation’s debt and equities, at least for now.

Greek bond yields are hitting fresh record lows and the nation’s stock benchmark has gained more than 40% this year, the best return globally. Although the nation’s debt challenges are unlikely to disappear any time soon, asset managers anticipate the opposition leader Kyriakos Mitsotakis of the New Democracy party will improve the business environment and boost demand for Greek assets.

World-Topping Greek Markets Await Big Vote Amid Hope for Change

“The hope is that the new government will make Greece more investable,” said Dimitri Dardanis, head of institutional equities at Piraeus Securities in Athens. “The continuation of the rally will depend on how strong of a majority New Democracy can win."

Optimism aside, the new government faces plenty of challenges. Greece remains Europe’s most indebted state and the chief of the euro area’s crisis fund last month reiterated warnings that the nation risks missing its budget targets. Greek lenders are burdened by the highest ratio of bad loans in Europe, battling with the overhang of a crisis that left the country with the highest unemployment rate in the continent.

Piraeus’s Dardanis said that retail and banking and stocks are in particular focus as investors await reforms. Still, the latter industry’s shares haven’t been held back. Attica Bank SA is up more than 340% this year and Piraeus Bank SA has gained more than 260%.

Money managers across the globe are turning to riskier assets in search of returns after global central banks last month signaled openness to more stimulus and lower rates. At the same time, the ASE Index of Greek stocks is trading at 17 times earnings, an almost 20% premium to the Stoxx Europe 600 Index.

World-Topping Greek Markets Await Big Vote Amid Hope for Change

Greek debt’s valuations may also be getting stretched. Pavilion Global Markets on Tuesday recommended taking profit on government bonds while remaining constructive on equities as strategists believe higher growth, efficiency and tax cuts are easier to promise than to deliver.

Despite this, the nation’s manufacturing Purchasing Managers’ Index is the highest in the euro zone and five-year credit default swaps have dropped to a January 2010 low. The biggest exchange-traded fund focused on the country, Global MSCI Greece ETF, just posted the biggest monthly inflow since January 2018.

“Greek risk assets have been largely overlooked in the past few years,” said George Lagarias, chief economist at Mazars Financial Planning Ltd. “An election could act as a catalyst to further reinvigorate interest in these overlooked assets.”

World-Topping Greek Markets Await Big Vote Amid Hope for Change

The opposition party topped a poll two weeks before national elections, according to survey for To Vima newspaper.

“Investors understand that we are about to see a major shift in policy with a win by New Democracy,” said Thomaz Malavazzi, managing partner at Helm Investment Partners in New York, which owns Greek stocks. “There is very little priced-in regarding the shift to a pro-growth policy mix. Greek equities still have a long way to go in terms of multiples expansion, but also and more importantly in the increase in earnings."

To contact the reporters on this story: Ksenia Galouchko in London at kgalouchko1@bloomberg.net;Filipe Pacheco in Dubai at fpacheco4@bloomberg.net

To contact the editors responsible for this story: Blaise Robinson at brobinson58@bloomberg.net, Jon Menon, Namitha Jagadeesh

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