Greece‘s stock market suffered heavy losses on Monday, plunging nearly 23 per cent after opening following a five-week shutdown brought on by fears the country was about to be dumped from the euro zone.
One fund manager described it as “herd behaviour“ and said few people were buying.
The main Athens stock index was down more than 18 per cent in midday trading after an initial plunge that was larger than any one-day loss experienced on the bourse. By contrast, the broad European FTSEurofirst 300 index gained slightly.
Banking shares, which make up about 20 per cent of the Greek index, were particularly hard hit. National Bank of Greece , the country‘s largest commercial bank, was down 30 per cent, the daily volatility limit. The overall banking index was also down to its 30 per cent limit.
Greece‘s banks have seen deposits severely depleted as Greeks have withdrawn their euros for fear the would be forcibly converted into a new drachma outside the euro zone. The banks have been propped up by emergency money from the European Central Bank.
“Bank shares look like they have more room to slide on Tuesday before bids emerge,“ said the fund manager, who declined to be named. “It will take a few days for the market to balance out.“
Exporters outperform
Some companies outperformed, mainly those with exposure abroad, although they still fell.
Greece‘s biggest telecoms operator OTE, along with jeweller Folli Follie and aluminium producer Mytilineos, which are mainly exporters, saw their initial losses ease.
“Non-financial companies will have a better performance than the banks, since their prospects are brighter and are less exposed to the domestic market,“ said Manos Chatzidakis, an analyst at Beta Securities.
Trading on the Athens bourse was suspended in late June as part of capital controls imposed to stem a debilitating outflow of euros that threatened to collapse Greece‘s banks and hurl the indebted country out of the euro zone.
Since then, Athens has agreed a framework bailout plan with its European Union partners in exchange for stringent reforms and budget austerity.
But implementation of the deal is some way off, keeping alive the threat of political and economic instability. There is also concern that prime minister Alexis Tsipras may need to call a snap election.
Monday‘s losses were attributed to a number of factors - such as negotiations on the new bailout potentially getting bogged down and leaving the government and banks perilously short of cash.
A report on Sunday in the newspaper Avgi, which is close to Syriza, said the government was seeking €24 billion in a first tranche of bailout aid from international lenders in August.
Of this, the newspaper said, €10 billion was earmarked for an initial recapitalisation of Greek banks, €7.16 billion to repay an emergency bridge loan and €3.2 billion to repay Greek bonds held by the European Central Bank and others.
The European Commission, however, believes an agreement in August is unlikely and that a new bridge loan will be needed.
Greece‘s dismal economic prospects may also weigh on the market. The European Commission says the Greek economy will shrink by 2 to 4 per cent this year, a return to the recession that plagued the country for six years until 2014.
Greece‘s economic sentiment also hit its lowest level in almost three years in July, a monthly report by the IOBE think tank showed.
Upbeat results from HSBC, Commerzbank and Heineken helped offset Greece’s troubles on wider European markets. The pan-European FTSEurofirst 300 was 0.4 per cent higher on Monday morning. Gains in Frankfurt and Paris compensated for a 0.2 per cent dip by London’s FTSE.
Great fall of China
Poor Chinese economic data kept Asian markets from showing the same resilience.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell more than 1 per cent to take it close to early July’s lowest level of the year.
Shanghai shares shed 1.9 per cent, Japan’s Nikkei slid 0.3 per cent and South Korea’s Kospi fell 1 per cent. Australian stocks dropped 0.4 per cent.
“We believe the macro environment remains challenging for emerging market assets amid headwinds of low commodity prices, concerns over China and a looming Fed tightening cycle,” Barclays strategists wrote in a daily note in clients.
Recent flows data confirmed that trend. Net foreign selling from emerging Asia has reached nearly $10 billion over the past two months. Only India has seen minor inflows.
Among the main global currencies, the dollar held steady after sliding Friday on disappointing US wage growth data, at 124.14 yen and $1.0970 to the euro.
Recent US economic data has undermined the dollar, but the broader trend has been to the upside, after the Federal Reserve last week left the door open for a rate increase in September.
The US dollar has gained 7.75 per cent so far this year against the world’s main trading currencies, after a 12.8 per cent rise last year.
And “the dollar’s recent rally may just be getting started,” according to research from the BlackRock Investment Institute.
“Since the 1970s when the Bretton Woods fixed-currency regime ended and currencies began floating, a typical dollar rally has lasted roughly six to seven years,” according to Russ Koesterich, BlackRock global investment strategist.
Reuters
