when debt markets and equity markets are
telling completely different stories it
can be highly profitable to pay
attention a pronounced example of this
can currently be seen in Greece where
its equity markets are sharply lagging
Greek government bonds that have rallied
during the country's recent emergence
from an economic depression if the debt
markets are correct then Greek stocks
should be one of the better performing
markets next year the most recent IHS
market Greece PMI showed its six
consecutive improvement in manufacturing
conditions whilst employment growth was
at its highest in the 18 years of the
survey has existed this consistently
good news can be seen in the Al biet in
liquid Greek tenure government bond
yield which has fallen from over 7% at
the start of the year to 4.3 percent
today
the Athens composite stock index
meanwhile is up just 16 percent
year-to-date there are some technical
factors behind Greece's stock market
lagging behind the improvement seen in
this government debt an economy many
Greek stocks are tiny in terms of market
capitalization and illiquid following
the crisis meaning few analysts bother
to cover them and large funds are unable
to own them psychologically professional
investors remain traumatized from their
prior experiences investing in Greece
and may not yet be willing to take the
career risk of distancing themselves
from the herd
few are also likely to bother to look
beyond a headline price to earnings
multiple of an index there's heavily
distorted by its weighting of banks but
for more nimble stock pickers there are
certainly opportunities a number of
greek industrial stocks have strong
balance sheets and trader undermining
multiples of free cash flow those
looking for a ratio although far riskier
option can choose greek banks not only
are they the most economically sensitive
sector but these lenders have very high
capital ratios traded large discounts to
book value and operate in a highly
consolidated retail banking market which
in the future should become very
profitable either way betting on greece
may become one of the trendiest reds in
2018