LONDON: Yield-hungry investors are flocking back to Greek and Portuguese markets, shunned by international buyers for four years, as the outlook for the bailed-out countries improves and alternatives look more expensive or increasingly risky.
Portuguese and Greek shares and bonds have been the best performers in Europe in 2014, and funds invested in them are making a killing, Thomson Reuters data shows.
Investors say they are driven by economic improvement, which provides fresh impetus to an initial bounce triggered by the European Central Bank’s pledge in 2012 to save the euro.
Potential investment alternatives are also less tempting. Tensions between the West and Russia and global growth concerns cloud the outlook for similar-yielding emerging markets, while a 1-1/2 year rally has shrunk returns elsewhere in euro zone debt.
“It’s not so much an interest-rate-driven rally but much more a structural shift and a perception that the euro crisis is behind us,” said Franz Wenzel, chief strategist at AXA Investment Managers, which manages assets worth about ¤550bn ($760bn).
After nearly crashing out of the eurozone in 2012, Greece’s recession is easing, while the Portuguese economy is already rebounding. Lisbon is due to exit its international bailout in about two months.
Greece’s ATG and Portugal PSI 20 stock indexes have been the best performers in Europe so far this year, having risen about 14 percent. The STOXX Europe 600 index is close to where it began the year.
Greek and Portuguese 10-year bond yields have fallen roughly 150 bps this year to roughly 7 percent and 4.4 percent, compared with 50-90 bps falls in fellow peripheral states Spain, Ireland and Portugal, whose bonds yield 3-3.5 percent.
While the small size of the Greek and Portuguese markets discourage some investors, it also means that a relatively modest inflow of money into those countries has a large price impact.
Funds invested in Portuguese shares, for example, took in a net ¤30m in January, nearly as much as in the whole of 2013, after steady outflows over the previous three years, Thomson Reuters Lipper data showed.
Their asset under management, however, were still a meagre 381 million euros, or a quarter of what they were in 2007. The picture is similar in Greek stock funds.
Even after their recent rebounds, Greek and Portuguese shares trade at steep discounts to their European peers, based on the value of their assets, Datastream data showed. This compares with hefty premiums before the crisis.
Junk-rated Greek bonds still offer higher yields than those for the rest of the euro zone and emerging countries such as Romania and Hungary. Portugal’s yield is comparable to Poland’s.
Reuters
