Tuesday, 31 March 2015
Photographer: Kostas Tsironis/Bloombergby Sofia Horta E Costa | 3:00 AM GST | March 31, 2015
(Bloomberg) -- Even as Greek stocks completed a fourth quarter of losses and volatility surged, investors are having a hard time turning down bets that things will improve.
An exchange-traded fund tracking Greek shares has drawn cash every week this year, totaling about $167 million, data compiled by Bloomberg show. Short interest slipped to the lowest level since July this month as Greece becomes the only western-European market posting a drop since January.
Greek stock swings almost doubled from last year as Prime Minister Alexis Tsipras sought a compromise with creditors to unlock bailout funds. Investors brave enough to place wagers now could see huge returns because equities stand to rally if the country implements new reforms, according to Andreas Kontogouris at Beta Securities SA.
“These investors want to be ahead of the market,” Kontogouris said by phone from Athens. “There’s a chance that, come June, Greece will not only have a new financing deal, but it will also start adopting major reforms. Suddenly things will look a lot better.”
The ASE Index fell 6.1 percent in the first quarter, with banks reaching a record low on March 19. The benchmark gauge moved an average of 3 percent a day in 2015, compared with 1.6 percent last year. The Stoxx Europe 600 Index had average daily swings of 0.7 percent this year.
Tsipras’s ascent has sown concern that the new government will fail to honor agreements tied to funds keeping the country from going insolvent. Credit-default swaps indicate the chances of a default have risen to almost 75 percent from 67 percent at the start of the month, according to CMA.
To win a Feb. 20 agreement extending the nation’s bailout, Tsipras backed away from election pledges to ease budget cuts and restructure debt. Greece has agreed to to produce a detailed economic plan that would bolster finances -- something the International Monetary Fund, European central banks and other creditors have yet to see.
European officials said on Monday the nation’s proposals need more work.
In its latest blueprint, Greece would allow a budget surplus of 1.5 percent of its 2015 economic output, Finance Minister Yanis Varoufakis has said. The proposal would bring in additional revenue and enable the economy to grow 1.4 percent this year, according to a Greek government official.
With the ASE near its lowest level since 2012, traders are speculating a rebound could be strong. The index has climbed more than 5 percent on six days this year. The biggest gain for the Stoxx Europe 600 Index was 2.7 percent in the period.
Short bets on the Global X FTSE Greece 20 ETF fell to 1.6 percent of shares outstanding, down from a high of 20 percent in December, Markit data show. The short interest is lower than for similar funds tracking stocks in Germany, France and Italy.
To Vassilis Patikis, head of global markets at Piraeus Bank SA, it’s still too soon to invest in Greece given the market volatility.
“There’s still too much uncertainty to call it either way,” Patikis said from Athens. “The market is driven almost entirely by politics, making it impossible to have a view based on the usual fundamentals.”
While Greek shares fell this year, the rest of the region took off as the ECB started a quantitative-easing program. Stocks in Germany, Italy and Portugal are up more than 20 percent for 2015. The Stoxx 600 has advanced 17 percent, its biggest quarterly gain since 2009.
“Some investors are clearly looking to make a quick buck with Greece,” said Ion-Marc Valahu, co-founder of Clairinvest in Geneva. “They’re playing the knee-jerk reaction if we finally get a political resolution. For me, a rebound will last a few weeks at the most. With QE lifting the rest of Europe, there are easier places to make money.”
To contact the editors responsible for this story: Cecile Vannucci at email@example.com Chris Nagi
by Simon Kennedy | 10:56 AM GST | March 31, 2015
(Bloomberg) -- In Germany there’s no such thing as guilt-free borrowing.
Even when it’s the lenders who pay the borrower.
“In German, debt is the same word as guilt,” former Italian Prime Minister Mario Monti said in an interview. The word is “Schuld.”
Monti is among the critics who say Chancellor Angela Merkel’s unwillingness to pull out the credit card is holding back the euro-area economy and making it harder to overcome the financial-crisis aftermath. By sitting on the fiscal sidelines even with a budget surplus, Berlin has put virtually the entire response to the threat of deflation on the European Central Bank.
The latest reason to raise eyebrows at the intransigence is that Germany now pays just 0.2 percent to borrow for a decade. It would charge its lenders -- through negative interest rates - - to get cash for as long as five years.
“It’s almost pathological,” said Simon Tilford, deputy director of the Centre for European Reform in London. “You’re talking about an economy where the fiscal situation is robust, inflation is exceptionally low, the capital stock has been eroded for many years and where the government can borrow at close to zero and still it refuses to spend.”
That aversion, stemming, the thinking goes, from the hyperinflation of the 1920s and a desire to run up its current-account surplus, have irritated allies in Washington and Paris who want to do more to speed expansion.
It’s not much help to the German economy.
Public investment has fallen as a share of German government expenditure to just above 10 percent from 14 percent at the start of the 1990s. Studies by the World Economic Forum find executives report a steady decline in the quality of infrastructure in the past decade.
The economic payoff could more than cover the cost of borrowing. A December study by Selim Elekdag and Dirk Muir, economists at the International Monetary Fund, calculated that state spending of 0.5 percent of gross domestic product for four years would boost GDP by 0.75 percent.
The spillover effect would also raise output in Greece, Ireland, Italy, Portugal and Spain by 0.33 percent, the study estimates. Faster growth would surely be welcome news for the ECB, whose crisis-fighting aggressivneness has earned German ire from the start. A pair of Germany’s ECB policy makers, Axel Weber and Juergen Stark, quit in protest in 2011.
So why won’t Merkel loosen the purse strings? As she aims to keep a balanced budget through the 2017 election, the argument is that the economy is doing well without stimulus, a debt equivalent to 72 percent of GDP requires paring to meet euro-area rules and an aging population requires savings now.
Yet Michelle Tejada, an economist at Roubini Global Economics LLC in London, says by not spending now, Germany may find its economy overheats at relatively low rates of expansion and that it’s even harder to finance pensions.
The country may even end up surrendering its role as Europe’s engine if its trend rate remains about 1.7 percent.
“You can’t sustain a whole region when growth is so low,” she said.
To contact the reporter on this story: Simon Kennedy in London at firstname.lastname@example.org
To contact the editors responsible for this story: James Hertling at email@example.com Zoe Schneeweiss