A Greek Play... Do we see an opportunity?

A contrarian would be looking at the Greek stock market right now and be wandering whether the current stock market valuations, which are hovering around some of the lowest in the world, represent a mega buying opportunity.

Have investors overreacted to the Greek political crisis, panicked, run for the exit door on mass and driven Greek stock valuations to gift levels?

Here's a brief run-down on the situation.

The country is set to go to the polls on January 25 with the financial issue centred around the four year bailout loans, which expired in December 2014. Logically, the creditors want their money back, plus interest. Usually that wouldn't be a problem, but in Greece's case, as we all know, the economy still remains in a sorry state four years on from the crisis. The current governing party, New Democracy, want to continue along the lines of more austerity and public cuts in order to honour their debt commitments.

However, the Greeks have had austerity up-to their eyeballs. In other words, peddling austerity is not going to be a vote winner for New Democracy, which would be the financial market’s preferred political party. So it is no surprise that the ultra left Syriza party is ahead in the polls and is likely to gain power on the premises that it will do away with austerity and restructure Greece's debt.

But what actually happens in the Greek election might not have a medium longer term impact on the Greek stock markets.

What are the likely scenarios?

The New Democracy could be voted back into power. However, if opinion polls are anything to go by, this is unlikely to occur, unless by some miracle the Greek electorate get cold feet on the prospects of voting the Syriza party to power. Not entirely impossible bearing in mind that Syriza is advocating Greece exit the Eurozone and reinstate the drachma, which is considered a radical idea. On the day, the Greek electorate might decide that an exit would be too much of a risk to take and swing back to the New Democracy. But the economic situation has deteriorated to a great extent. Already the country is experiencing a great depression style situation, with mass unemployment. Around one in four of the working population are without a job and around fifty percent of the youth are regretfully unemployed. Public services are deteriorating etc... Many of the electorate may believe that they are already in a zero state. So what can they lose by voting in the radical Syriza party?

Frankly, the odds of the New Democracy being elected are pretty remote, but assuming they did, the Greek stock market would surely rally. Again, that would be an unlikely scenario. 

So a more likely outcome is that the Greek electorate vote into power the charismatic Alexis Tsipras of the Syriza party. 

But we all know that political parties touting for votes in an election campaign is one thing and when elected to power their actions often don't tally-up.

Do you really think that Alexis Tsipras of the Syriza party would pull Greece out of the Euro zone and reinstate the drachma if he were elected to power on January 25?

Remember Labour Party Gordon Browns election pledge, ‘no tax-breaks for millionaires’? When elected to power he did the reverse. What about Lib Dems leader Nick Clegg’s campaign promise to abolish student tuition fees? What happened? Student tuition fees went up! Politicians are expert liars, they actual convince themselves that they are telling the truth, that is why they are so convincing. 

Assuming Alexis Tsipras of the Syriza party gets voted in, a meeting would soon take place behind closed doors with Tsipras and the Troika, which consists of international creditors, the European Central Bank, European Commission and the International Monetary Fund. After all, Syriza party has been voted in with the view that they would renegotiate Greece's debts with the Troika. 

There is no need to be a fly on the wall, it’s more than likely that Tsipras will cut a deal with the Troika. Greece’s total debt is approximately 300 billion euros. That sounds like a lot of dosh but when that figure is put into context of the total eurozone, with a combined GDP of almost 10 trillion euros, it’s a relatively small sum. 

There is a lot of leeway for negotiating, the Troika could pardon, say, half the amount or a third, leaving 200 billion to be paid back and interest rates could be postponed for say two, or five years. Moreover, if the Troika has got muck on Tsipras, maybe a skeleton or two in the closet, that could seriously damage the Syriza party’s reputation if made public. Then the Syriza party might even be blackmailed into signing on the dotted line on Troika's terms. 

But let's assume that Tsipras is more catholic than the pope and he can get the debt pardoned to 100 billion for example, on those terms he would probably cut a deal and run. Why jeopodize Greece being pulled out of the EU and exiting the euro for say 100 billion euros. That would be a huge gamble, for relatively little gain, which is why when push comes to shove Tsipras is likely to strike a deal with the Troika. 

Syriza party could then go to the electorate and brag about how he saved the nation 200 billion euros and he would be hailed a Greek hero by the electorate. Greece would still remain in the euro and the Greek stock market would most likely rally.

In short, the Greek General election might have little or no impact with respect to the local financial market. With that in mind, the current price of Greek Stocks might represent a buying opportunity for an investor with a high tolerance to risk. As I conclude this piece, latest news flashes on my screen. "The lead that Greece's anti-bailout party Syriza has over the ruling conservatives has narrowed." 

Greek stocks are looking juicy.