Research Department's annual update

Winter is… ending!

Macro & equity market strategy for 2021

Some macro considerations

  • The Covid-19 pandemic interrupted the post-adjustment recovery, at a time when growth was accelerating, and the economy was taking a new direction on the back of market-friendly reforms introduced since mid-2019.
  • Greece has fared much better in Covid-19, with fewer cases and causalities, on a relative basis. However, the impact on GDP was higher than average, given Greece’s higher exposure in services and especially tourism.

  • Greece is entering a virtuous circle supported from:
    1. The structural reforms of the past, which still continue, improving competitiveness, attracting investments
    2. The unprecedented fiscal accommodation | EUR 80bn support coming from EU funds plus the > EUR 30bn support from local resources on the back of the ‘general escape clause’ on fiscal policies
    3. Ample liquidity (on relaxed monetary conditions globally)
    4. Historic low borrowing costs (for both the government and the private sector)
    5. Pent-up demand across the board, and adequacy of resources (due to low economic activity / capacity utilisation rates).
  • For these reasons, Greek GDP growth is seen outperforming EU average rates from 2022 onwards. 2021 will be a transitional year, with Covid-19 still affecting 1H21 economic activity largely.

Our thoughts on Greek equities

  • Greek corporate profitability is seen being restored to its pre Covid-19 levels by next year.

  • Still, 2022 profits will lag their pre-crisis peak in most case, illustrating the good upside potential.

  • Greek equities offer a compelling risk-reward proposition. The market is attractively valued under a number of matrices.

  • On a relative basis, Greece is trading at similar discount levels to peers last seen in 2012, when GDP outlook was much worse and GGB yields much higher.

  • Banks are also attractively valued, trading on >50% discount to peers. The sector will re-rate once visibility improves and further de-risking is implemented.

  • Compared to the early 2014 valuation highs, most stocks trade on an elevated discount, with Jumbo, Fourlis, OPAP, EYDAP and refineries being very good examples.

  • Equities are also more attractive to bonds, offering a 3.7% DIY vs. GGB yields of c. 1%.

  • Our top picks include: PPC (Covid-19 immune, restructuring play), OTE (Covid-19 immune, strong FCF generation and DIY), Jumbo (robust balance sheet, good growth potential post Covid restrictions). From banks, we prefer Eurobank and NBG which seem more advanced in their clean-up process.

Read the full report here.