Wood – HSBC: Bullish on the outlook for the Greek economy and Greek stocks in 2023

Wood and HSBC are optimistic about the prospects of the Greek economy as well as the course of Greek shares, with the banks at the center, as can be seen from their new reports.

In particular, Wood points out that Greece had another strong year in 2022, with a dynamic GDP recovery (+5%), a stable political scene and a positive performance for the general index of the Athens Stock Exchange (+4%), despite the negative global scenery.

OECD for Greek economy: Growth in 2023 at 1.1% – Inflation at 3.7%

Looking ahead to 2023, fundamental tailwinds are in store for a stronger domestic macroeconomic outlook, a possible upgrade to investment grade, possible dividend distributions from banks and continued earnings upgrades from companies.

Headwinds are the volatility that risks building up in a protracted election period, the start of HFSF disinvestment for the banking sector and risks from the global macroeconomic environment, which could have a negative impact on tourism and exports.

“We remain bullish on Greek equities and expect the outperformance to continue, driven by the recovery of the banking sector and the strong improvement in profitability in the non-financial sector. Our top choices are Eurobank, Piraeus, OPAP and Mytilineos,” emphasizes Wood.

Strong start for the Stock Exchange

The AXA General Index closed 2022 with gains of 4%, significantly outperforming the rest of the indices, which recorded up to double-digit declines, Wood emphasizes.

Stock picking was key to investor returns in 2022, with the top five stocks returning more than 30%. These were Motor Oil, thanks also to higher refining margins, Terna Energy, boosted by strong demand for RES and potential mergers and acquisitions, Jumbo, having secured profitability through successful regular prices, Mytilineos, enjoying high commodity prices and facility efficiency at natural gas plants and National Bank, with strong ROTE and low valuation.

On the contrary, some large caps, such as Coca Cola, OTE and Alpha Bank closed the year in negative territory.

2023 started on significantly positive ground for the stock market (+3.6%), with the banking industry leading the way (+10%). Some of the stocks that were left behind in 2022 are making a comeback, mainly Alpha Bank at +15% and PPC at +9.3%. In any case, overall market sentiment started with a more bullish attitude, helped by a more favorable global landscape (EuroStoxx 50 at +7%, European banks at +8.5%).

GDP growth in the 1% – 3.5% range

Wood puts Greece’s real GDP at 1% in 2023, accelerating to 2.2% in 2024, against a 1.3% contraction for the eurozone as a whole. These forecasts are above the current estimates (consensus) for growth of 0.6% in Greece this year and 1.9% in 2024.

He also estimates that there is scope for even better performance of the Greek economy, as he considers it reasonable that the tourism season will prove to be resilient even in a landscape of sluggish global growth. In addition, the December economic sentiment surveys further reinforce the possibility of positive surprises in the 2023 GDP performance, with a reasonable range of 1.0-3.5% expansion in her view.

Good news for bonds

As far as Greek bonds are concerned, as Wood says, the bond yield models for the main eurozone countries indicate an increase in borrowing costs for Germany, France and Italy, which has also affected Greece.

Nevertheless, he expects Greek bonds to start trading at lower spreads to Germany than to Italy this year due to the following reasons: less selling pressure from the ECB due to quantitative tightening, the benefits of a possible upgrade to investment grade this year and a better debt sustainability profile which is now becoming apparent. Funding needs are estimated by ODDFX at 15.4 billion euros, which Wood assesses as easily manageable.

The “policy” parameter

General elections are due to be held in Greece in June 2023, but according to reports, early polls are likely, with April being the date for the first round and May for the second, it is noted. For the market, as Wood points out, the best outcome from the election would be a stable government, continuing the current set of policies. From this point of view, another term with an absolute majority from New Democracy would please investors, according to the agency. Current opinion polls show a convincing lead for the current ruling party, but it has not yet secured an absolute majority in parliament.

A SYRIZA comeback does not seem likely based on today’s polls, while theoretically in the second round it could try to form a coalition with the parties of the Left, which will also be difficult to achieve. In any case, according to Wood, the initial market reaction to a return of SYRIZA would be considered negative by investors.

The top picks

Wood remains bullish on Greek banks and expects continued outperformance against their EU counterparts. The discounts remain significant, despite the strong rise in their shares and the improvement in profitability. “We are positive about all Greek banks. However, the best plays for 2023 are Eurobank and Piraeus Bank”, it characteristically notes. Eurobank trades at a similar P/E to National, but with a higher ROTE and a more attractive long-term growth story. Piraeus is extremely cheap, with excessive discounts of 50-60% compared to other banks, but with a significant profitability track.

Of the remaining large caps, Wood maintains OPAP in its top picks for 2023 as a stock that delivers sustainable returns to investors, and Mytilineos, due to its strong commodity outlook for 2023, coupled with timely investments in the sector electricity and natural gas, which will compensate the group in terms of significant revenue generation for the year.

Wood gives a target price of 1.50 euros for Eurobank with a 31% upside margin, 2.5 euros for Piraeus with a 60% upside margin, 26 euros for Mytilineos with a 29% upside margin and 16.7 euros for OPAP, with an increase margin of 24%.

He maintains a Buy recommendation for the rest of the banks, with a target price of 1.5 euros for Alpha Bank and a 31% upside margin, and 5.2 euros for the National Bank with a 31% upside margin as well.

At the same time, as it notes, it maintains Fourlis (Buy recommendation, target price 5.70 euros), GEK Terna (Buy recommendation, target price 12.8 euros) and Titan (Buy recommendation, target price 15 euros) on its radar ). He also places Helleniq Energy, Terna Energy, Motor Oil, Sarantis, PPA and HEXA in the list of buys.

Risks

Finally, overall, the risks for the outlook of the Greek market according to Wood are: 1) the instability that could be created by the upcoming elections, 2) the start of the disinvestment of the HFSF by the banks which may unleash a wave of stocks in market thus exerting pressure on their prices (although it is a positive long-term factor, which could increase the free float) and 3) global macroeconomic risks, which could negatively affect tourist flows and foreign direct investments in Greece.

HSBC also bullish

On the same wavelength, HSBC remains bullish on Greek stocks. In the emerging markets strategy report, it emphasized that it maintains its overweight position on Greek stocks as they are a cheap play on the strong prospects of the Greek economy.

Widening eurozone spreads have, as always, been difficult for equities, he says, however, he adds, Greece’s domestic macroeconomic fundamentals are strong. After a long recession, medium-term growth prospects are promising. Greece has a strong domestic demand background and in this context could be seen as a notable beneficiary of de-globalization.

At the same time, the valuations of Greek shares are attractive, HSBC emphasizes. Banks continued their recovery and remain at the center of the strong story of Greek stocks.