- Lenders had record slump last month, trade near lowest ever
- Government-bond yields have rebounded from low in November
The brief bout of market optimism spurred by this summer’s Greek bailout has descended into an autumn chill, leaving equities in even worse shape relative to the rest of the world than in 2014.
After defying everything and rallying in September and October, the benchmark ASE Index has resumed its swoon, falling 23 percent in the past six weeks and closing Wednesday at the lowest level in more than three years. Its 32 percent slump in 2015 through yesterday, recently amplified by a selloff in lenders that has erased almost all of their stock-market value, made it the worst performer among global equity indexes tracked by Bloomberg. The gauge rebounded 1.4 percent at 12:22 p.m. in Athens.
The bank rout has been particularly painful in the past few weeks, as a recapitalization process flooded the country’s market with billions of new shares while struggling to attract sufficient demand from buyers. Even worse: the entry of that stock into the market is creating a vicious circle in which lenders’ proportion in share-weighted indexes is actually getting larger.
“This means ETFs following Greece and local funds have to sell non-banks and buy banks,” said George Athanasakis, equity sales director at Pantelakis Securities SA in Athens. With such investors unable to send money elsewhere, it’s likely Greek stock losses will continue throughout December, he said.
The country’s four largest lenders sought to raise funds from private investors in November to plug a 14.4 billion euro ($15.9 billion) capital hole, selling shares for less than market prices. Neither the National Bank of Greece SA nor Piraeus Bank SA managed to raise all the money needed, and European creditors agreed to disburse the remaining funds with emergency loans. Adding to the woes, some bond investors can convert their holdings into common stock, further flooding the market with equity.
As of Thursday, the number of Alpha Bank SA and Eurobank Ergasias SA shares available to investors on FTSE/Athens Stock Exchange indexes will swell 89 percent and 81 percent, respectively, according to statements. The increases mean that Alpha Bank will make up about 14 percent of the FTSE/ASE Large Cap Index, from about 1 percent, Athanasakis said. Eurobank’s weighting will rise to 9 percent from 0.5 percent, according to his calculations. The index provider will readjust its weightings after five days that the new shares of National Bank of Greece and Piraeus Bank begin trading.
While raising much needed cash, the deluge of stock sales is destroying the overall market value of lenders, not increasing it. The FTSE/Athex Banks Index tumbled a record 77 percent in November and another 15 percent this month, taking its annual plunge to 95 percent. It’s trading near its lowest level ever, reached Dec. 4. National Bank of Greece, down 98 percent this year, even became too tiny for the New York Stock Exchange to keep it on its bourse. It was delisted last month.
Government-bond yields, even though they don’t reflect the same anxiousness as stocks, have risen too. Rates on 10-year debt climbed to 8.38 percent on Wednesday from a low of 6.94 percent in November.
“It’s all this abnormal supply and demand of shares for a limited time period that creates volatility, coupled with all the political uncertainty which inevitably increases the country risk,” said Nikos Kyriazis, an equity sales trader at NBG Securities SA in Athens. “The yields of Greek bonds exactly reflect this perception of increased risk.”