Tired of tech? Give Greek growth a go
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Tired of tech? Give Greek growth a go

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As inflation indicators across the globe begin to point to a period of sustained growth, equity investors have fretted over where to put their money instead of tech stocks, whose valuations have reached gargantuan multiples. There is a compelling argument to be made for rotating into Greece, specifically its banks, which will have to finance a new wave of economic growth.

Now, GlobalCapital is not predicting that all the investors nervously watching the rise and fall of the Nasdaq 100 will suddenly pile their gains into the Athens Stock Exchange.

However, investors say they are looking further afield for growth and away from the traditional tech champions that have driven indices higher in the past 14 months.

There is an interesting growth story to be told about Greece, whose credit rating was upgraded by Standard & Poor's at the end of April to BB with a positive outlook. The ratings agency predicted economic growth of 4.9% this year — surpassing the Bank of Greece’s own estimate of 4.2% — and 5.8% next year. Another upgrade for Greece is likely, the analysts said.

There is certainly a lot of room to grow. Greece reported GDP per capita of $31,997 in 2008, but then the Financial Crisis battered its economy and the figure dropped to a low of $18,167 in 2015. By 2019, the year before the pandemic, it had recovered to $19,582, a solid 7.8% improvement from the depths but still well below its pre-crisis highs.

If Greece were to just return to where it was before the Financial Crisis, that would represent GDP per capita growth of 63.4% — a huge spurt for investors to back.

One way to play this rebound would be through the country’s banking sector. Greece’s four systemic banks — Alpha Bank, Eurobank, National Bank of Greece and Piraeus Bank — are large enough to represent a kind of proxy for Greece’s economic recovery, which will likely be funded by large amounts of lending.

And they have the firepower to do it, after making good use of the country’s Hercules securitization programme, which was designed to clean-up non-performing exposures.

On Monday, Alpha Bank opened books on an €800m capital raise to fund its role in the turnaround, which it predicts will be boosted by huge piles of cash from the EU Next Generation fund, the bloc’s recovery package for member states hit by the Covid-19 pandemic.

In another report, S&P said that the Next Generation EU plan could boost Greek GDP by 8.3% under its "low-impact scenario" and 18.3% under a "high-impact scenario".

The underwriters on the Alpha Bank raise said on Monday that it was generating significant interest with investors, in a continuation of the recent strong form for equity buyers embracing Greek deals

Piraeus was in the market in April with a €1.38bn capital increase to cover the cost of cleaning-up its non-performing exposures. Investors speaking to GlobalCapital at the time described the transaction as transformational and were eager to back the story of the bank resetting itself and preparing for recovery.

Both banks are also still trading at bargain prices — perhaps the ultimate value stocks — as banks in other European countries also show huge equity growth potential.

In Italy, which is often compared to Greece, three of the country’s top banks, UniCredit, Intesa Sanpaulo and Mediobanca, are trading up 53%, 62.3% and 87%, respectively, in the last 12 months.

Many of these gains have come in the last half year, a time when tech stocks have been under pressure.

With question marks still hanging over the long-term potential of tech firms to deliver the sort of growth that their equity multiples imply, investors may have to look elsewhere to capture growth potential.

With strong macro winds behind it, Greece, and its banks, don’t look a bad bet.

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