Greek companies are small, but will be valued differently in developed markets
JP Morgan sent an indirect message for the creation of larger corporations in Greece through its report on 8 October, in which it stated that it was “not pleased with FTSE’s decision to upgrade the status of the Greek Stock Market to developed market.”
Essentially, the investment bank — whose core business revolves around mergers, acquisitions, and capital increases — is hinting at the need for “national champions” capable of competing on a pan-European level.
According to analyst D. Aserkoff and JP Morgan, outflows are estimated at €112.8 million, while Greece’s weighting will fall from 70 basis points in the FTSE EM Index (Emerging Markets) to 27 basis points in the FTSE All Capex US Index.
The American bank reminds readers that, in a previous report last June, it had already noted that the upgrade would be negative for the overall “health” of the market, as investor interest from both buyers and sellers would weaken.
What the American company forgot – Valuations in developed markets are higher
JP Morgan notes that with the shift from a base of country-focused emerging market investors to a base of pan-European sector-focused investors, it found that: No Greek bank is among the top 50 pan-European banks, Public Power Corporation (PPC) ranks 25th in the pan-European utilities sector, and Jumbo ranks 42nd out of 46 companies in the European consumer sector. Even Metlen, which recently dual-listed in London and Athens, recorded an average trading volume of €5.1 million in the FTSE 100 Index, compared to €9.8 million previously.
In other words, through its analysis, JP Morgan is indirectly encouraging mergers and acquisitions on the Greek Stock Market, so that companies can increase their capitalisations and eventually qualify as “national champions.”
According to brokers in the Greek market, during Athens’ transition to developed market status, the key factor will not be the short-term capital outflows, but rather the long-term boost in valuations.
Specifically, the P/E ratio in developed European markets is 40–50% higher than in emerging markets.
Greek banks, for instance Eurobank and National Bank of Greece, have a price-to-book ratio (P/BV) of 1.4 and 1.38, respectively, a level that is gradually converging with their European peers at around 1.6.
Therefore, the discount at which Greek shares trade across various valuation metrics is expected to narrow gradually.
Moreover, JP Morgan fails to mention the sheer volume of capital directed toward each market: In developed markets it's approximately $71-72 trillion, whereas in emerging markets barely $8 trillion.
Even a small reallocation of funds within developed markets — such as the recent capital shift from the US due to the dollar’s decline — is mathematically certain to cause positive ripples in a regional market like Athens.
Furthermore, the high valuations in the US combined with the continuing fall of the dollar favour a capital movement toward Europe.
www.bankingnews.gr
Essentially, the investment bank — whose core business revolves around mergers, acquisitions, and capital increases — is hinting at the need for “national champions” capable of competing on a pan-European level.
According to analyst D. Aserkoff and JP Morgan, outflows are estimated at €112.8 million, while Greece’s weighting will fall from 70 basis points in the FTSE EM Index (Emerging Markets) to 27 basis points in the FTSE All Capex US Index.
The American bank reminds readers that, in a previous report last June, it had already noted that the upgrade would be negative for the overall “health” of the market, as investor interest from both buyers and sellers would weaken.
What the American company forgot – Valuations in developed markets are higher
JP Morgan notes that with the shift from a base of country-focused emerging market investors to a base of pan-European sector-focused investors, it found that: No Greek bank is among the top 50 pan-European banks, Public Power Corporation (PPC) ranks 25th in the pan-European utilities sector, and Jumbo ranks 42nd out of 46 companies in the European consumer sector. Even Metlen, which recently dual-listed in London and Athens, recorded an average trading volume of €5.1 million in the FTSE 100 Index, compared to €9.8 million previously.
In other words, through its analysis, JP Morgan is indirectly encouraging mergers and acquisitions on the Greek Stock Market, so that companies can increase their capitalisations and eventually qualify as “national champions.”
According to brokers in the Greek market, during Athens’ transition to developed market status, the key factor will not be the short-term capital outflows, but rather the long-term boost in valuations.
Specifically, the P/E ratio in developed European markets is 40–50% higher than in emerging markets.
Greek banks, for instance Eurobank and National Bank of Greece, have a price-to-book ratio (P/BV) of 1.4 and 1.38, respectively, a level that is gradually converging with their European peers at around 1.6.
Therefore, the discount at which Greek shares trade across various valuation metrics is expected to narrow gradually.
Moreover, JP Morgan fails to mention the sheer volume of capital directed toward each market: In developed markets it's approximately $71-72 trillion, whereas in emerging markets barely $8 trillion.
Even a small reallocation of funds within developed markets — such as the recent capital shift from the US due to the dollar’s decline — is mathematically certain to cause positive ripples in a regional market like Athens.
Furthermore, the high valuations in the US combined with the continuing fall of the dollar favour a capital movement toward Europe.
www.bankingnews.gr
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