By Sarah Turner
Of MARKETWATCH
Since news that Greece's budget deficit was massively
understated, the stock market in Athens has taken a beating.
Over three months, there's been a 23.4% drop for the Greek ASE
Composite Index--compared with the pan-European Dow Jones Stoxx 600
index, which is up 4.1% over the same period.
And that's for a good reason.
The sell-off in Greek stocks, as well as Greek bonds and other
financial assets was a "natural reaction to a serious fiscal
situation," said Richard Batty, global investment strategist at
Standard Life Investments.
Greece's finances have been a focus since the country revealed
that its budget deficit-to-GDP stood at over 12%--well above the 3%
limit under European Union rules.
Worries have mounted that the country could default on its
debts, or that it could be expelled from the euro.
Banks have taken the brunt of the fall. Shares of the National
Bank of Greece (NBG), for example, are down 36.7% over the last
three months, while Piraeus Bank SA (TPEIR.AT) is down 47.1%.
"Banks are fundamentally sound....the problem is with the state
finance, not the companies," said Konstantinos Manolopoulos, head
of research, at Investment Bank of Greece.
"Banks have invested heavily in government bonds. If Greece goes
under, then the banks will go under as well," he said.
Even if Greece doesn't default on its obligations, the banks
face potential funding problems if Greece's credit rating falls
below the standards set by the European Central Bank for
collateral.
Still, looking outside the financial sector, there are some
Athens-listed companies that have seen their shares hold up
relatively well in the recent market carnage.
For example, Coca-Cola Hellenic Bottling SA's (CCH)
Athens-listed shares are up 3.1% over the past three months, which
is not that different a performance from the broader Stoxx 600
index.
Fund managers and strategists say that several factors have
worked in the company's favor recently, including a strong presence
outside Greece.
Coca-Cola Hellenic, which is 23% held by Coca-Cola Co. (KO), for
example, operates in emerging markets, as well as other areas of
Europe, such as France and Switzerland. For 2008, volumes in Greece
totaled 163.4 million unit cases out of a total of 2.12
billion.
Companies such as Coca-Cola Hellenic Bottling "just happen to be
based in Greece," said Alexandros Pavlaridis, Athens-based deputy
equity investment manager at EFG Eurobank Mutual Fund Management.
"Most of the large-cap companies are diversified," he added.
In addition, the firm belongs to a sector that is generally
viewed as less susceptible to economic changes and therefore a less
risky place to put money. "We like consumer staples and food and
beverage companies," said Pavlaridis.
Pavlaridis said that, just like in any other country, he expects
investors to differentiate between companies. "Companies that
deliver on earnings per share and shareholder value will
outperform," he said.
"We think that it's going to be challenging but that something I
see for the whole of the equity market," he added.
Herbert Perus, head of global equities at Raiffeisen Capital
Management in Austria, said that he sees the recent sell-off in
Greek shares as a buying opportunity on a three-to-five year time
horizon. Raiffeisen's European equity fund manages about 400
million euros of assets
"There are some really well managed companies in Greece with low
debt and good stories," he said. "Value is the key for us. If you
compare Greek companies with other equities, sentiment is very bad.
Therefore that's an opportunity," he said.
Coca-Cola Hellenic, for example, trades on a price-to-earnings
ratio of 13.3 times 2010 earnings, according to data compiled by
FactSet.
In contrast, French food and drink manufacturer Danone on a
price-to-earnings ratio of 16.1 times for 2010, and Pepsi Bottling
Group trades on a price-to-earnings ratio of 14.5 times.
Perus holds shares in lottery operator Opap SA (OPAP.AT), down
10.1% in the past three months, and also likes stock exchange
operator Hellenic Exchange Trading, down 22% over the same
three-month period. Hellenic Exchange Trading, Perus says, is "one
of the most disliked companies in Europe."
Still, the risks of investing in Greece shouldn't be
underestimated. Past research shows GDP growth hurt by about one
percentage point once debt-to-GDP ratio rises above 90%, according
to James Chappell, a strategist at Olivetree Securities.
Manolopoulos at Investment Bank of Greece said that he believes
many investors are reluctant to enter the stock market at the
moment, as the fiscal situation is still so murky.
"I wouldn't bet that everything is solved. We will have newsflow
in the coming days when the European Union will express an opinion
on the [Greek government's] stability program," he added.
Still, he said there is huge interest in Greek shares at the
moment.
"We have seen so many investors over the last few days. Everyone
wants to hear the story of Greece. I think they are very skeptical
though. They see the upside but probably want to see the numbers
first," he said.
"Definitely money is made in the dark, but it might get darker,"
he said.
Sarah Turner is a markets reporter for MarketWatch in
London.