A few brave Wall Street pundits have been making small and speculative investments in the Greek stock market.
It has become so bombed out that its cyclical price-to- earnings ratio of four is the same as the US stock market at the bottom of the Great Depression.
Of course just because something is cheap does not mean it is a good buy. Prices can always go lower. But there is always a point when market pessimism has just gone too far. Is that Greece today?
To say sentiment is negative on Greece is a considerable understatement of the obvious. The country is clearly in a deep recession with GDP falling by six or seven per cent each year without an end in sight, or certainly not for another couple of years.
There is the frightening prospect of ejection or resignation from the euro, and the horror of what that might mean if you buy assets with euros now and ending up with drachmas tomorrow. But this is a known risk and does it necessarily have to be as bad as the media and political hype would have us believe?
So what happens if or when Greece exits the euro? This would certainly be very bad news for Greek creditors who will face widespread defaults. But will the same big Greek families who have forced up house prices in the prime areas of London this year with their huge purchases not see an obvious opportunity in a country that perhaps they only understand and can do business in?
The real euro exit from Greece has already happened. That was when the big guys got their money out and into safe havens. It can just as easily all come back and fuel an equally astonishing recovery. Besides what is now the downside of investment in the Greek stock market? They would also be very unlikely to kick out the few foreign investors left, as they will be desperate for any investment funds.
To be fair right now there is a 20 per cent downside to the previous lows of June so that might be your maximum downside. It is hard to see things getting very much worse than that. I’ve been following the interminable wrangling by the Greek politicians over the European Union bailouts and debts. Right now they want to keep to the agreed programme but push the timeline back.
The Germans have understood what this is all about. Basically the Greeks are telling the Germans that you have to back us or we will bring the whole system down. You then get hot tempers and hot air from both sides, and yes confidence in the Greek financial market is consequently at rock bottom. Then again is that not when you want to buy stocks, not when everybody is agreed that there’s a recovery in Greece?
There is one exchange traded fund that holds all the largest Greek stocks, GREK, and it is so out of favour that it only has 5.9 million euros worth of assets because institutional investors fled Greece ages ago. So please Arabian investors do not try to take a very large position or you could easily move the price up.
You could wait for the next pull back in global stock markets and then buy. But the risk then is that you will not be alone, and when financial markets become this depressed the percentage movements to the upside can be huge, though admittedly from a very low base.
What you do need to do is take a long view and not think in terms of months but a few years. All stock markets eventually recover. Even Wall Street rose again from the crash of 1929.