Panayotis Alexakis, President of the Athens Stock Exchange, is focused on educating Greek investors. ASE photo

Over the last year, Greece has left the ranks of emerging markets to be added to the list of capital markets of developed economies. Market watchers hope that when the Athens Stock Exchange is added to the Morgan Stanley list of capital market indexes on May 31 this year there will be a major inflow of foreign money to replace the emerging market funds that pulled out last year.

Despite this upgrading, however, it has not been a happy year and a half on the ASE as the index has plunged about 60 percent from its high point of around 6,700 in late 1999.

For those Greeks who invested in the market for the first time when they saw prices shooting skyward in 1999, some of them mortgaging or selling property to raise cash to buy shares, the decline of the market has been nothing short of a nightmare.

The need for education of shareholders to act with greater caution became apparent and for some time now the ASE has led an educational drive in Greece, encouraging private investors to consult advisors before investing, to hold stocks over longer periods and to avoid putting all their drachmas into one stock. Most important, they are being told they should not put all their assets into stocks.

In a more sober investment climate, 2001 has seen the ASE index hover above the 3,000 mark as it passes through what its president, Dr. Panayotis Alexakis, calls "a transition period."

Alexakis says that only some of the decline in the ASE index is attributable to the global downturn in capital markets over the last year. The other reasons have been related specifically to Greece.

He says in the second half of 1999 there was a "very significant overshooting" in the valuation of shares and the overall Greek economy by the market.

Currently, the capitalization of the ASE is $120 billion, which is about 85 percent of Greece's GDP. In 1999, the capitalization reached 150 percent of GDP.

The downward trend was accelerated when in the latter half of 2000 many of the emerging market funds pulled out of the ASE as it prepared to be upgraded to a developed market. New money from developed market funds did not replace these funds pending ASE's new listing, Alexakis and analysts say.

In the second half of 1999, foreign investors owned 15 percent of ASE stocks. By mid 2000 this figure had declined to 10 percent, whereas today it is less than five percent. This figure was expected to climb upwards again after the May 31 Morgan Stanley listing.

Alexakis says some of the doom and gloom surrounding the fall of the ASE is unwarranted insofar as the excessive gains in '99 were only on the books, and these were negated by accounting losses in '00.

He also points out that most Greek investors have only been in the market for less than two years, and many sold their holdings after just a few months instead of waiting for the market to recover.

Since 75 percent of ASE stocks are now held by individual rather than institutional investors, after most emerging market funds pulled out, the education of investors is considered a key element in its recovery and the long-term health of the Greek market.

Alexakis says the ASE has been educating brokers as well as 1,000 firms (ELDE) that act as intermediaries between brokers and individuals buying and selling shares.

The market needs "stability, transparency and safety," he stresses, to encourage domestic and international investors. All relevant EU guidelines for capital markets and their supervision have been implemented by Greece.

One of the forces encouraging the flow of domestic money into the ASE has been the sharp decline in bank interest rates. Just a decade ago banks were lending commercial money at around 20 percent, making bank savings an attractive proposition to Greeks. Today, lending rates are about a fourth of those highs, on a par with European Union levels. Thus dividend income now competes with bank interest, and represents a completely new opportunity for Greeks.

Alexakis is committed to the education program. "Education is the most important thing," he says emphatically. He wants to encourage Greeks to invest but he also wants them to know that it is risky.

In addition to education of middlemen and agents in the market, he has encouraged companies to be more transparent, including the establishment of investor relations departments, a novelty in Greece. He has also seen to the provision of information over the Internet, although Greece still has very low levels of Internet use.

Currently there are about 400,000 active investors in the market, out of a total of 1,750,000 who hold shares in the 334 listed companies. The typical daily volume of trade is 30 to 35 million shares for a total value of $150 million, but this is slowly increasing and should reach about $250 million once the market has recovered, Alexakis says.

All shares are traded electronically, and the trading floor of the dignified old stock exchange building on central Athens' Wall street, Sofokleos street, is to be used for seminars and an exhibition of Greece's 125 years of capital markets.

As the only Euro-zone capital market in the Balkans, the ASE hopes to become a regional market and is actively seeking the listing of large companies in the area as well as cooperation with neighbor's stock exchanges.

"This is a market of opportunities," Alexakis says. "We have very good companies."

He hopes foreign investors will look at the ASE anew and recognize its intrinsic value.

"It is worth seeing our market," he concludes.

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