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Greek stock index up 13% this year, outpacing European

benchmark

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Economy growing, debt falling, dividend yield attractive

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FTSE Russell put Greek market on upgrade watchlist in

October

By Johann M Cherian

Dec 17 (Reuters) - Greek stocks are fast becoming a

popular option for investors, with some expecting an upgrade to

coveted developed-market status next year, as the economy

outpaces its euro zone peers and bank stocks roar ahead.

The Athens General Stocks Index has risen 13.1% so

far in 2024, building on a near 40% jump last year, and

outperforming the Europe-wide STOXX 600's 7.7% gain

this year.

Asset manager Amundi's Greek equities fund

attracted net inflows of $2.9 million in November, its biggest

in a year, according to data compiled by Morningstar ( MORN ).

"The economy is growing rapidly relative to the euro zone

average and it does move the needle from an earnings growth

potential point of view for these Greek companies," said

Wim-Hein Pals, head of emerging markets equity at Robeco, which

manages more than 10 billion euros ($10.5 billion) in emerging

market funds.

Greece has made a steady recovery from a debt crisis that

started in 2009 and almost saw it crash out of the euro before

an international bailout. Its borrowing costs have dipped below

those of Italy and France, and its banks - which had to be

bailed out during the crisis - are fully privatised again.

Analysts see further momentum in Greek stocks as they still

trade at a discount to the STOXX 600 and pay higher dividend

yields compared to the broader European market - factors that

could attract more investors.

The European Commission expects the economy to grow by 2.3%

in 2025, ahead of 1.3% for the euro zone.

Financial stocks, which make up about 30% of the

main Greek index, have gained over 20% this year on strong

demand from foreign and domestic investors, as the government

completed the privatisation of banks.

The four biggest banks have resumed dividend payments for

the first time in 16 years.

The overall economic picture also looks brighter. The

government has been repaying its bailout loans and debt is

expected to drop to 146.8% of gross domestic product next year,

according to the European Commission, from a pandemic peak of

over 200%. Analysts at Bank of America expect the ratio to fall

below that of Italy by 2028 - currently above 134%.

While Europe braces for potential trade tariffs after U.S.

President-elect Donald Trump re-enters the White House on Jan.

20, the U.S. has a trade surplus with Greece this year, which

could limit any impact.

"Greek companies are most probably better off in relative

terms, regarding a potential trade war," said Nassos Koumettis,

senior trader at Athens based Hellenic Asset Management.

"The greatest part of Greece's exports to the U.S. consists

of services that would probably be more immune to U.S. tariffs,"

added Koumettis, whose firm manages about half a billion euros,

and increased its holdings of Greek stocks by 5 percentage

points recently.

Following the U.S. election, Robeco also increased its

active overweight position by 0.5 percentage points to 3%,

particularly in the financial sector.

Greece's improving economic performance has also brought its

equities closer to reclaiming developed market status, with FTSE

Russell putting it on an upgrade watchlist in October.

"To a large extent, it checks a lot of the boxes. It's a

matter of having a track record now on this positive path,

particularly on the fiscal side," said Athanasios Vamvakidis,

Global Head G10 FX Strategy, BofA Global Research.

Most fund managers follow MSCI's classification and the

global index provider still considers Greece an emerging market

since its downgrade in 2013.

MSCI said some of the reforms taken to make the market more

accessible were still being tested by institutional investors,

including stock lending and short-selling practices.

($1 = 0.9523 euros)