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:
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- The structural reforms of the past, which still continue, improving competitiveness, attracting investments
- 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
- Ample liquidity (on relaxed monetary conditions globally)
- Historic low borrowing costs (for both the government and the private sector)
- 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.