Greeks brace for stock market losses after five-week shutdown

Greek Stock Market [Reuters]

Greece will take another step away from full-on crisis mode today (3 August) by opening its stock market for the first time in five weeks, although immediate heavy losses are expected. 

Trading on the Athens bourse was suspended in late June as part of capital controls imposed to stem a debilitating outflow of euros that threatened to collapse Greece’s banks and hurl the indebted country out of the euro zone.

Since then, Athens has agreed a framework bailout plan with its European Union partners in exchange for stringent reforms and budget austerity. But implementation of the deal is some way off, keeping alive political and economic stability concerns.

Market players in Greece and elsewhere are expecting stocks to fall sharply when the market opens at 0730 GMT. Bank shares are expected to be particularly affected as the country’s lenders are in a vulnerable position because of outflows of billions of euros from deposits over the past six months. Some €40 billions has been withdrawn from Greek banks since December, according to the country’s banks association, amid fears over the fate of the Greek economy.

Ilya Feygin, managing director at WallachBeth Capital, estimated late last week that losses could be in the region of 19 to 22 percent. Takis Zamanis, chief trader at Beta Securities, agreed and went further, suggesting no single share would gain on the day.

Part of this is based on what has happened to Greek assets traded in the United States.

The “GREK” exchange traded fund (ETF) — comprised of U.S. market listings of Greek companies — fell around 20 percent in July. A similar loss was seen in U.S.-listed securities issued by National Bank of Greece.

The Athens General Index has fluctuated sharply this year, which has seen left-wing Prime Minister Alexis Tsipras’s newly elected Syriza government wrangle with European Union and International Monetary Fund lenders in bitter bailout talks.

Traders are expecting losses for a number of reasons that all weigh on the bourse. There is concern, for example, that negotiations on a new bailout will again become bogged down, leaving the government and banks perilously short of cash.

A report on Sunday in Avgi newspaper, which is close to Syriza, said the government was seeking €24 billion in a first tranche of bailout aid from international lenders in August.

Of this, the newspaper said, €10 billion was earmarked for an initial recapitalisation of Greek banks, €7.16 billion to repay an emergency bridge loan and 3.2 billion euros to repay Greek bonds held by the European Central Bank and others.

The European Commission, however, believes an agreement in August is unlikely and that a new bridge loan will be needed.

This all puts Greek banking sector shares in the spotlight. Recapitalisation, both long- and short-term, waters down the value of existing shares. The banks are also not making profits this year and have lots of bad loans.

With banking shares comprising 20% of the overall bourse, this does not bode well for Monday. Similarly, Greeks themselves will be severely restricted in what they can do.

In order to limit the possibility of using shares as part of euro-flight, the government and ECB have said no extra money can be withdrawn by Greeks from deposit accounts to buy shares.

Greece’s dismal economic prospects may also weigh on the market. The European Commission says the Greek economy will contract 2 to 4% this year, a return to the recession that plagued the country for six years until 2014.

The reopening of the stock market comes after senior EU and IMF auditors held their first meetings with Greek ministers to finalise a new three-year bailout for the country which could be worth up to €86 billion.

The last trading session on the Athens stock exchange was on June 26, a few hours before Prime Minister Alexis Tsipras announced a referendum on the stringent bailout conditions demanded by Greece's international creditors.

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