Tourists walk in front of the 2,500-year-old Parthenon temple, on the Acropolis Hill in Athens, Thursday, Aug. 25, 2011.Petros Giannakouris/The Associated Press
Move over Brazil, Russia, India and China – a new country is set to enter the emerging markets landscape: Greece. Does that make it an enticing investment?
The country was booted out of MSCI's developed market indexes in the summer, well after Greece's benchmark index plunged with a debilitating economic downturn and bailout. As of tonight, it will share company with the so-called BRICs, as well as Mexico, Peru, Egypt, Malaysia and several others.
As an investment, Greece's beaten-up assets have been attracting some attention. Consider that the Athens Stock Exchange General Index has risen 27 per cent this year, rivalling the gain for the S&P 500, and is up 140 per cent from its low in June 2012. (It is hardly in nosebleed territory, though: The ASE is still down 78 since 2007.)
BCA Research this week singled out commercial Greek real estate as a good buying opportunity, arguing that the "improvement in Greece has been remarkable." That is, the euro zone's economy is showing modest improvement, raising capital flows and investor activity, and sending bond yields down from highs seen during the sovereign debt crisis.
"The companies that are still standing in Greece are the survivors that will be able to withstand significant economic fluctuations," BCA said in an online note. "For commercial real estate investors, these companies will provide a solid base of tenant income with a recovery play."
But Credit Suisse is more cautious. As an emerging market, for example, Greece doesn't quite fit with their notions of an emerging market economy – characterized by strong economic and corporate earnings growth. And though the economy is on the path toward recovery, retail sales and consumer confidence remain in a near death-state, due to ongoing pressure on payrolls and wages. Oh, and they believe that Greek banks are not yet fully recapitalized.
"We believe that Greece lacks potential for growth in productivity, demographics, urbanization, credit extension and investment spending which are defining characteristics of EM investments," Credit Suisse said in a researcg note.
What's more, they argue that Greek stocks are not the best way to play a euro zone recovery because so little of its corporate revenue is driven outside the country. For a recovery play, they prefer the so-called CE3, or the Czech Republic, Hungary and Poland.
David Berman