AN INTRODUCTION TO OUR EMERGING MARKETS SERIES

As you may know, there are different key characteristics that countries must have to be considered an emerging market. Two examples of those characteristics are having a lower-to-middle per capita income or having some sort of regulatory body as well as a market exchange for investment and common currency.  The Morgan Stanley Capital International Emerging Market Index (MSCI Index) is the governing power that categorizes and reports out on new emerging markets.

The term “emerging markets” is exciting for businesses, as it insinuates higher growth rates and higher opportunity in comparison to developed countries. That being said, emerging markets all see an increased climate for sociopolitical instability and volatility. Every emerging market is plagued by one or more of the following: military unease, social upheaval, natural disasters, price shocks, and other causes that create high volatility.

Now that we have laid out the “science,” we are thrilled to introduce you to our “Emerging Market” blog series! We will use this series to educate on the strengths, weaknesses, opportunities, and threats of the present-day emerging markets. We will dive into the year so far, the political climate, risks, and rewards and finally - the biggest areas of opportunity.

In our previous emerging markets article, we discussed the business opportunities arising in the Emerging Power Market - Saudi Arabia. Now, we are going to make our way west to southeastern Europe to discuss Greece! Specifically, we will discuss the countries’ journey on the MSCI Emerging Markets Index.

AN (ALMOST) YEAR IN REVIEW

Greece has hit its best stock performance for the first time in 20 years. Although a small stock market, Greece racked up an impressive gain of 47%, which would place it between Russia’s gain of 56% and the USA gain of 27%. The Athens Stock Exchange (ASE) gained and sustained 44% between January and October. The market recovered losses dating back to five years ago and has impressively recovered at 101.59% (13.121 billion euros), maintaining this high for 15 months straight. In January, industrial production rose 3.4% year over year.

According to Bloomberg, “FDI into real estate rose dramatically from 89 million euros in 2017 to 752 billion euros in 2018.”

The tourism sector has also been a large contribution to the market’s increase. The surge in tourism, which reached an all-time high of 3601.30 million euros, lead to a rise in housing prices. Greece has moved up from 96 in 2013 to 57 in 2018 in competitive rankings. Additionally, Greece’s unemployment rate has dropped from 18.3% to 18%, the lowest level it has been since July 2011.

GOVERNMENT

New Prime Minister Kyriakos Mitsotakis is expected to deliver on his promise to attract foreign investment and boost growth in the new year. Growth will pick up to at least 2.8% next year from 2% in 2019, according to Reuters. The progress that is already underway with the unemployment rate promises an accelerated boost in domestic growth. This shift will likely nudge creditors to serve and lend in Greece. Recently, the government said it wants agreement from official lenders on “lowering the 3.5% of GDP budget surplus target in 2021 and 2022.” There is still a need for growth, but Greece’s prospects are normalizing now, as political and market risks dampen with New Democracy at the reins.

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WEIGHING RISKS AND REWARDS

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GLOBAL SLOWDOWN

The threat of a global slowdown could negatively affect the momentum Greece has built up, particularly relating to its reliance on tourism and exports.  Although the overall risk in the EU looms, exports in Greece are expected to maintain stability and rise.  In the event of a weakened external economic climate, the country has potential offsets, expecting an overall healthier economy with improvements in the areas of employment and consumption.  Additionally, renewed investor interest is blossoming in the industrial and real estate sectors. In January, industrial production expanded 3.4%, and FDI into real estate rose dramatically from 89 million euros in 2017 to 752 billion euros in 2018. One thing to note: the tourism sector flourished-- causing a moderate rise in housing prices throughout the country. Correspondingly, industry growth experienced an upsurge in Q1.  Permits increased noticeably by 36% in Q1.

CHANGE IN POLITICAL CLIMATE

As a result of recent elections, Kyriakos Mitsotakis of the centrist-right New Democracy party replaced Alexis Tsipras of the Syriza party, as Prime Minister of Greece.  His win leads the New Democracy party to hold a majority in Parliament.  In this new leadership phase, Greece will still be fighting the uphill battle of high debt to GDP levels and unemployment.  Yet, this progress may help to accelerate domestic growth.  Overall, even though progress is still required prospect’s are balancing right at the perfect moment: when political and market-risk seem bleak, and New Democracy holds the policy reins to enact change.

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STOCK MARKET AND ECONOMIC CONFIDENCE

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(https://www.globalxetfs.com/behind-greeces-2019-market-rally/)

At the beginning of 2019, Greece’s stock market came in tenacious, assisted by the country’s expansive economic growth--it’s fastest since 2007.  As Q2 wrapped up, markets saw an uptick of 40.4%--making it the greatest performing emerging market year to date (YTD)!  Forecasts estimate the overall annualized GDP to be significantly higher than for all of greater Europe (2.4 - 1.3%).  Greece’s yields additionally fell to an all-time low, when issuing 10-year bonds.  All of this data points to steady growth, and growth prospects agree.  Improving growth prospects could help place the country at an advantage point against the overall gloomy economy of Europe.

Furthermore, consumer confidence helped kickstart off the year positively.  Starting at pre-crisis levels, the economy has grown consecutively for 4 months through June, attributed to this factor alone.  While at its highest level in almost a decade, personal consumption continued to be a driver for performance into Q2, attributed to the consumer services, energy sectors, telecoms, and casino & gaming sub-industries.  These overall developments correlate positively with increases in household finances, labor gains & unemployment falling 3%, and greater labor productivity/improvements.

CONCLUSION

Greece is on the trajectory of growth.  Pre-crisis days are the last most can recall indicators of positive and receptive investor attention, and the aptitude for ample, economic growth.  Despite exiting an IMF bailout program only months ago, the country has shown amazing flexibility in the toughest situations, finding the ability to grow through accumulative structural change--and overall outperforming its emerging-market counterparts.  Through the challenges it faces, Greece still has aroused renewed attention for its emergence from a crisis, and continuing economic growth.

We will be highlighting a new emerging market every month and we challenge you to think big for your business. If you’re interested in expanding globally or learning more about potential opportunities, please reach out to us via our contact page or email us at hello@castusglobal.com.