(MENAFN- Gulf Times) Traders who got attached to bets that Greek financial markets will unravel are getting a lesson in politics.
Spurred by signs the new government is softening its stance on debt payments, Greece's ASE Index is heading for its best week since 2008 after its biggest two-day jump since 1990. Even after rising 0.1 percentage point at 1:48 pm in Athens, the yield on 10-year bonds is down 1.56 percentage points since Friday and ended at 9.52% on Tuesday, almost 35 percentage points below highs reached before the nation held the biggest-ever reorganisation of sovereign debt in 2012. An exchange-traded fund tracking Greek equities has received about $45mn in fresh cash this year.
The reversal shows the dangers of committing to bearish trades in Greece, where newly empowered leaders are showing signs of compromise after pledging to loosen austerity measures imposed two years ago. While the ASE has fallen 30% in five months, it's posted seven separate rallies of 4% or more along the way, including an 11% surge on Tuesday.
"It's difficult to predict anything," said Veronika Pechlaner, an investment manager at Ashburton Ltd in Jersey, the Channel Islands. "It's all about politics. The real deadline will be when the bailout programme ends, or possibly a bit later than that. The base case for most people is still that these negotiations will go reasonably well." Shares are proving resilient in a country where the economy is growing for the first time in seven years € rebounding 0.9% in 2014 from the worst recession on record € and is forecast to expand 1.9% in 2015 and 2.5% in 2016, according to the median estimate of 22 economists surveyed by Bloomberg.
A plunge in bank shares sent the ASE to its lowest level since September 2012 last week after Syriza leader Alexis Tsipras's pledge to seek a writedown of Greek debt helped him win the January 25 vote. Since former Prime Minister Antonis Samaras announced presidential elections in December, intraday stock swings for the ASE have doubled from their one-year average, data compiled by Bloomberg show.
Nobel Prize-winning economist Robert Shiller said investors may have overreacted. The price of Greek stocks doesn't reflect their earnings potential, he said last week. While the nation's bonds had the worst three-month returns of 34 sovereign securities tracked by Bloomberg's World Bond Index, the selloff was much milder than in 2012, when Greece's membership in the euro area was at stake. That year, private investors forgave more than ‚¬100bn ($115bn) of debt, opening the way for a new rescue package as the country's debt reached 171% of its 2011 GDP. Greek stocks and bonds rallied on Tuesday after Finance Minister Yanis Varoufakis outlined plans to swap some debt for new securities.
"The political rhetoric is more constructive than most feared," said Espen Furnes, who helps oversee $85bn at Storebrand Asset Management in Oslo. While international investors owning Greek stocks would face losses should Greece leave the euro, "these risks have somewhat abated," he said.
Resolution of the debt issue is far from a done deal. Germany expects negotiations will drag on until April or May, when Greece approaches a cash crunch, a person familiar with the matter said. Gianluca Ziglio, executive director of fixed-income research at Sunrise Brokers LLP in London, said the European Central Bank probably won't accept Greece's bond-swap proposal.
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