Saint Paul, Minnesota – January 28, 2015 – Greece is once again making news headlines. In late December, Magni published an article asking if Greece is a buying opportunity. Since then the situation in Greece has mostly followed the path we discussed in the December article. The SYRIZA party won the election, yet did not win enough seats for an outright majority. It quickly entered into a coalition with a hard right populist party. While the two parties are on opposite ends of the political spectrum, they share a common platform to renegotiate the terms of previously settled bailout agreement.
The Greek stock market continues to be hit hard with multiple days of large declines. These declines appear to be further “baking” the downside scenarios in valuations. The downside scenario includes the potential removal of Greece from the European Union and euro currency bloc.
Up to now, the talk of backtracking on Greek reforms is just that, talk. Reform‐fatigue in Greece has given voice to a more populist message as articulated by the SYRIZA political party. While we at Magni cannot discount the possibility that this more populist regime actually causes a fundamental change in the country’s relationship with the rest of Europe, remaining within the European Union and staying part of the euro currency bloc are supported by a clear majority of Greeks. The strong talk from the newly elected government, and conversely from the European leaders on the other side of the debate, is just that: talk.
We will be watching this situation closely and taking appropriate ratings action if actual changes do occur. If the reforms continue we believe that the changes enacted thus far, as well as plans for future reforms, put Greece on a path of more sustainable growth. In this case, the recent weakness in Greek stocks could turn into an attractive buying opportunity.