The Greek stock market and the bond market behave as if investment grade has already been reached.

The Athens Stock Exchange has outperformed most other stock exchanges and the perception of Greece in the financial markets is changing drastically, which is particularly noticeable in the bond market. The yield on the ten-year Greek bond is lower than that of the comparable Italian bond. The yield spread against the German is the lowest since October 2021, and shows how well Greece is coping with key interest rate hikes from the ECB, compared to other eurozone countries.

The recovery of the investment grade will be a milestone for the Greek economy, not only because it repositions the country as an investment destination for long-term return funds, but also because it creates particularly favorable liquidity conditions for the Greek State, banks, insurance funds and especially households and businesses.

The bond market

Greek bonds are experiencing a renaissance in the financial markets, despite the fact that Greece has the highest debt ratio of all EU countries. and is the only member of the Eurozone considered by the rating agencies as “not suitable for investment”.

We are all waiting from month to month for the recovery of the investment grade, but in fact it has been since 2021(!) , when Greece issued 30-year bonds, an issue which was oversubscribed by 9 times, tangible proof of the confidence of the markets in Greek debt, as they invested capital for such a long time. In recent weeks, Greece has come to borrow lower than Italy and the United Kingdom and very close to the USA. Greece will soon receive the “stamp” of investment grade from the major rating agencies. Of course, it is not a panacea, but the Greek economy will have an annual fiscal benefit of the order of 1 billion with the investment grade and Greek bonds are on the radar of international investment funds that invest in bonds and managed about 28 trillion. US dollars in assets.

The investment tier will bring new inflows into Greek bonds, from index funds, which are estimated by BofA at 16 billion euros. This is a significant amount, given that there are only €74 billion of Greek bonds in circulation, of which €35 billion are held by the ECB.

BofA expects some spillover in inflows, depending on how quickly the big three upgrade their ratings. Therefore, these flows are expected more in 2024.

The entry of Greek bonds into investment grade will also enable inclusion in widely used bond benchmarks, while allowing many large institutional investors to invest in Greek bonds.

If today there are around 100 investment organizations working in Greece and investing in it, this number will approximately increase tenfold once we get the investment grade, according to an earlier statement by the governor of the Bank of Greece.

When we enter the investment tier, investors who are currently limited by their statutes to invest in a country that does not have an investment tier, will invest in Greece. Such as pension funds. Insurance fund offers for Greek bond issues are well below 10%.

This low percentage is due to the fact that the risk analysis systems of fund managers for insurance funds allow only small percentages of participation in non-investment grade bonds, since they are considered high risk. With the recovery of investment grade, insurance funds will have greater access to Greek bonds.

Government bonds will be included in the ECB’s bond purchase program, with the consequence that their demand will increase significantly and yields will fall.

The stock market

The stock market has started to discount the upgrade of the Greek economy and the recovery of the investment grade, from the end of 2022 and this is the main driver that leads the market to a strong rise and to levels that it had seen since 2014, rise which is also accompanied by a significant increase in turnover, indicative of new inflows mainly from foreign portfolios.

Foreign investors have begun to put the Greek market on their radar, in view of the recovery of the investment grade, for a few months now, something that was also seen from the investment conference organized by the AX in London at the end of 2022, when they gave the present representatives of international investment organizations that manage total funds of more than 30 trillion. dollars.

The investment grade regime is the one that will give a big boost to Greece and also to the Athens Stock Exchange, as Axia Ventures emphasizes, given the positive effects it will have on the economy and on Greek assets. A return to investment grade (IG) will allow Greek stocks and bonds to return to the radar of more investors. Essentially, these investors were unable to allocate capital to Greece after its downgrade to emerging markets, due to restrictions on their charter.

In addition, the investment grade “security” allows a much larger audience of investors to invest in Greek assets. This is due to the fact that in developed markets assets under management reach 52 trillion dollars, compared to only 6.3 trillion dollars. dollars in emerging markets.

Morgan Stanley explains that equity markets outperformed the emerging market index by 22% in the eight months prior to the upgrade to investment grade.

Greece is on a clear path to investment grade and a New Democracy majority government will continue to lead the country on the path to fiscal consolidation, Morgan Stanley emphasizes. An upgrade of Greece to investment grade in the coming months may support the current momentum in Greek stocks, as equity markets tend to start moving higher about eight months before the first rating. This is the main reason why the American investment bank appears “bullish” on Greek stocks, pointing out that a reduction in the cost of capital (CoE) from 11.7% which is currently at levels close to 9.4%, due to the recovery of investment grade, would mean a potential upward trend of +32% for the Greek stock market.

As we approach the recovery of the investment grade, the approach made by large foreign investors to the A.A. it is like being placed in a developed market.