A Peek Into The Future

World’s Cheapest Greek Stocks Resist Bottom on Default Prospect

By Natalie Weeks and Alexis Xydias

May 26 (Bloomberg) -- Europe’s biggest investors say the risk of default by Greece make equities trading with the developed world’s lowest valuations too expensive to own.

Renaissance Asset Management said the Athens Stock Exchange General Index may fall more after a 30 percent slump in 2010 pushed its price to 8.6 times estimated 2010 profit. The earnings ratio, below the level where the Standard & Poor’s 500 Index began an 80 percent rally in 2009, is meaningless unless Greece cuts its deficit, Swisscanto Asset Management AG said.

More than $78 billion of market value was erased in Greece since October as a budget shortfall equal to 13.6 percent of gross domestic product threatened to boost loan losses and provisions at banks, which stood at a combined 991 million euros ($1.23 billion) for the country’s four largest lenders in the fourth quarter.

Balance Sheets

The ASE’s price-to-earnings ratio is 33 percent below the multiple for the MSCI World Index of 23 developed markets. The gap isn’t attracting investors, who remain concerned Prime Minister George Papandreou won’t cut spending enough to prevent a default, said Colin McLean, who helps manage 650 million pounds ($937 million) at SVM Asset Management Ltd. in Edinburgh.

“There is a great likelihood of debt rescheduling or default in Greece, and that will cause some damage to balance sheets, so I don’t think there is obvious value there,” McLean said. “The economy itself will be suffering contraction over the next coming years.”


The Greek stock market is not yet at compelling low of 5 or 6 to 1 Price to Earnings ratio, but is heading the right direction.

It is our view that the Dow and S&P are heading to this territory before the correction is finished. We will set some specific targets at a later date.