Greek banks lure global investors back to Athens bourse


* Greek banks seen recovering along with broader economy

* Athens stock market an outperformer in 2013

* Bourse still worth a fifth less than before crisis

* Many pension funds still see Greece as too risky

By Sudip Kar-Gupta and Francesco Canepa

LONDON, Oct 17 (Reuters) - Bailed-out Greece is luring backforeign investors betting on more gains in its bank-dominatedstock market and an eventual economic recovery, Thomson Reutersdata shows.

Athens remains a market more for the likes of hedge fundsthan mainstream foreign investors, and some fund managers sayGreece will take time to shake off its reputation for beingbust.

Nevertheless, the benchmark Athens Stock Exchange GeneralIndex, one of Europe's smallest by market capitalisation,is up 24 percent since the start of 2013, beating gains of 15percent on Germany's DAX and 11 percent on thepan-European FTSEurofirst 300 index.

Share trading by foreign investors on the exchange hasjumped to about 50 percent of turnover from a low of just over20 percent in 2012 at the height of the Greek debt crisis, whichculminated in international bailouts totalling 240 billion euros($324 billion).

After a six-year slump which has wiped a quarter offeconomic output, the government is forecasting a return toeconomic growth in 2014. The stock market is still worth almosta fifth less than before the crisis, and investors are snappingup stocks that should benefit from a recovery, from banks totelecoms.

"Turnover has increased dramatically in both Greek stocksand bonds, and the market is coming back to life," saidSteppenWolf Capital Chief Investment Officer PhoebusTheologites.

Greece, excluded from capital markets since 2010, stillfaces big problems. Unemployment is close to 28 percent andprogress with privatisation has been slow.

Clairinvest fund manager Ion-Marc Valahu, whose Greekholdings include Hellenic Telecom and gambling groupOPAP, said many mainstream pension funds wereunwilling to enter a market they still regard as too risky.

"Those funds cannot go to their retail clients and say we'reputting 10 percent in Greece. The perception that the country isbust hasn't changed for many," he said.

Yet U.S investment bank Citigroup wrote in a research notethis week that it felt "the worst is behind us" after meetingmajor Greek banks and policymakers.

Greece had a 2.6 billion euro central government surplus inthe first nine months of 2013, excluding debt servicing costs,putting it on track to hit fiscal targets that will allow it toseek further debt relief from its international lenders.

"We see signs that things are getting better," AthensExchange Chief Operating Officer Dimitris Karaiskakis toldReuters at a Marketforce conference in London this week.

Greece is also due to join the MSCI emerging markets indexin November, which would open it up to funds benchmarked to thatindex.


Betting on the Athens stock exchange is mostly a play on arecovery in Greek banks, which comprise about 40 percent of thebenchmark index, compared with 20 percent in 2012.

Greek Coke bottler Coca Cola Hellenic's decision tomove its primary listing from Athens to the bigger FTSE 100 inBritain extended banks' domination of the Athens market.

While this relative lack of diversification may put off someinvestors, others who are prepared to take on the risk havefound this a rewarding bet since banks tend to outperform whenequity markets rise.

Greek banks underwent huge upheaval during the economicslump, leaving three main players - Piraeus, NationalBank of Greece and Alpha, all of which are largelyowned by a bailout fund.

A fourth, Eurobank, is almost entirely owned bythe Hellenic Financial Stability Fund (HFSF).

The banks are still burdened with bad debts as a result ofthe crisis, which also led to a drop in deposits as money fledthe country.

Non-performing loans total 28 percent across the four banks,which will undergo two further rounds of stress tests. This yearU.S. consultant Blackrock and accountancy firm Ernst &Young is conducting a review commissioned by thecentral bank. In 2014 the banks will also participate in apan-European stress test.

Still, the FTSE Greek Banking Index has risenabout 60 percent since July as the sector has been buoyed byinjections of capital from a rescue body - the HellenicFinancial Stability Fund.

BCM & Partners Chief Investment Officer Matteo Pusineri saidGreek banks would benefit from moves by European regulators tostabilise and shore up banks after the euro zone debt crisis.

Weekly trading volumes on the Athens bourse have picked up,reaching a peak so far in 2013 of 678 million shares, up from ahigh of around 400 million in 2012.

"From clients' point of view, they are getting a lot morepositive about it. I think there's large capital returns to bemade in Greece," said EGR Broking managing director KyriKangellaris, whose firm includes Greek nationals among itscustomer base.

Others are looking outside for greater safety. "Greekcompanies are still in convalescence. There are betteropportunities elsewhere in the southern periphery of Europe,such as Italy," said Paris-based Gregoire Laverne at Roche BruneAsset Management.

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