Greece on the Mend: Investors Find New Land of Opportunity

John Paulson

The severely battered Greek economy is on the mend. A rebound may even be in the works. The same hedge funds that contributed in no small measure to Greece’s downfall are now seen as the engines of the country’s revival.

The rush into Greek equities is led by none other than John Paulson whose Paulson & Co. hedge fund has already booked a 290% profit on its sizeable stake in Alpha Bank. Mr Paulson now wants more and has nothing but praise for the Greek government: “Its pro-business stance is decidedly helpful.”

Mr Paulson – who made $3.7 billion in 2007 short-selling subprime mortgages – expects the banking sector to benefit most from the improved economic conditions. “Both Alpha and Piraeus banks are now very well capitalised and poised to recover with sound management in place.” The US investor emphasizes that Greek banks were the victims of the financial crisis rather than its cause as was the case with banks in Spain and Ireland.

The two main Greek banks have seen their shares rally significantly since their recapitalisation earlier this year; separately traded warrants have already doubled in value. These warrants were given to investors participating in the June bail-out of Greek banks and may eventually be swapped for shares at a set price. Though Alpha Bank shares have shot up 32% over the past three months, they are still trading at only 0.8 times the bank’s book value.

Banks are by no means the only star-performers at the Athens exchange. Investors have been snapping up shares of lottery operator OPAP (up 70% so far this year), telecom giant OTE (+63%) and mining conglomerate Ellaktor (+48%).

“Both Alpha and Piraeus banks are now very well capitalised and poised to recover with sound management in place.”

Achilles Risvas of Dromeus Capital, a hedge fund specifically set up to cash in on Greece’s recovery, thinks the good times haven’t even fully begun yet: “People laughed at us when we launched Dromeus; now they want to invest with us.” In 2012, Dromeus Capital was up a market-beating 40%. So far this year, the fund has returned a staggering 93%.

Mr Risvas sees plenty of future opportunities, particularly on the private markets: “Real estate may be close to bottoming out and should shortly become a most promising segment, though the upswing in publically traded companies is far from over.”

Foreign direct investment in Greece is also gaining some lost ground. Hewlett Packard, SAP and Boehringer Ingelheim have expanded their presence in the country. “We are a great place for investments and working hard to make it an even better one,” says Notis Mitarakis, Greece´s Deputy Minister for Development and Competitiveness.

Mr Mitarakis joined Prime Minister Antonis Samaras earlier this month in New York to pitch their country to US investors. “We now have legislation in place that speeds up the formation of new businesses. Red tape is being cut by the yard. Greece is dead-set on becoming the place to be.”

However, Mr Mitarakis’ job is far from done. Though moving in the right direction, Greece is still a country not quite suited for the fast and furious business dynamics its government seeks to foster. On the World Bank’s latest annual Ease of Doing Business ranking, Greece has moved up to slot number 78 (out of 183). In 2010, the country ranked 109^th and lagged far behind any other EU member state.

But, even with new streamlined procedures in place, Greece remains one of the most difficult places in the world (146^th) to start a new business. “For investments two flow, two basic requirements need to be met. There must be an opportunity to profit and a legal framework that protects the investor. Opportunities abound, but much of our regulation remains a bit too stiff and antiquated,” admits Mr Mitarakis.

The secret to unlocking Greece’s potential for economic growth is finding a way to engage the huge stock of domestic capital now sheltering elsewhere. “Any return to prosperity must go via the repatriation of the billions that fled the country as it imploded. We cannot really expect foreign investments to drive future growth while Greek investors keep up their vote of no confidence,” says Achilles Risvas who thinks the Samaras government is on the right track but might want to consider speeding up the necessary reforms. “This is not the time for complacency. Good progress is being made but in order for Greece to recover lost ground much more needs to be done.”