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She Eleftherias Kourtalis
Why it now maintains a neutral stance on Greek stocks, because it has been overweight in recent months and before the pandemic, HSBC explains in a recent report on emerging market stocks.
As you point out, the Greek stock market was hit this year when last year’s risky trade ended. It is clear that Greece will have a difficult year this year, given the negative impact of the pandemic on tourism, while the recession in the Greek economy will reverse the recent downward trend in Greek banks’ NPLs.
According to HSBC, the “core” of the Greek stock market, the banking sector, remains fragile. The asset quality of Greek systemic banks needs to be improved to “unleash” value in the industry and this in turn depends on the expansion of the economic recovery that started in 2019. However, the impact of COVID-19 will be It pushes the Greek economy into recession, notes the British bank.
Furthermore, as he says, the Achilles heel of the Greek economy is tourism. Tourism receipts represent approximately 10% of GDP and the industry “leads” almost 20% of the Greek economy. In recent years, the industry has grown to almost double digits. HSBC notes that a 50% drop in tourist arrivals could “wipe out” at least 5% of GDP. The pandemic could also harm the economy through other channels, with consumer confidence and the decline in manufacturing PMI in recent times. As the British bank reiterates, it estimates that this year the Greek economy will shrink by 6% and in 2021 it will recover by 5.8% (from 2.1%).
The COVID-19 pandemic also affects Greece’s fiscal position. The Greek government has already announced measures of 5% of GDP, but revenues are expected to be weak. HSBC estimates that Greece will have a budget deficit of 1.5% of GDP this year from a surplus of 3.5% in 2019, while Greek debt will increase to 190% of GDP from 176% in 2109.
Regarding valuations of Greek stocks and especially Greek banks, “on the surface they look clearly cheap,” says HSBC, with a 2020 p / e estimate of 5.5 and a book value price index of 0.2. However, in the absence of an economic recovery this year, Greek banks’ asset quality and profitability will deteriorate, and the industry is starting to suffer.
