JP Morgan sees recovery of investment grade for Greece at the end of 2023 or at the beginning of 2024, i.e. after the elections that will take place before the end of July of the new year, but also “increasing positions” in Greek bonds, especially after the election period which may also be offer investment opportunity for new placements in Greek 10-year bonds
Although it considers the political risk in Europe to be limited due to the elections scheduled for 2023 in Greece, Spain and Finland, it nevertheless notes that for Greece, the upcoming elections will be the first after a few decades in which the bonus will not exist of the 50 seats in the first party, in total, the risk of a lengthy process of forming a coalition government is real.
The assessment of Greek elections
However, as JP Morgan states, New Democracy is still ahead in the opinion polls, as it currently gathers around 35% against SYRIZA’s 28%, i.e. a similar result to that of the 2019 elections, with the basic scenario of the American bank, however, is that New Democracy will win the election and form a coalition government, continuing to implement a constructive political agenda.
However, the risk of forming a coalition government could take some time as the number of potential coalition parties is limited or the ND may have to govern with a minority government.
If Greek bonds come under pressure during the election period in mid-2023, this will be an attractive opportunity to increase positions in Greek bonds, given the US bank’s key assumption that the new government will not deviate substantially from the current one’s political agenda. JP Morgan predicts that the spreads of the Greek 10-year bonds from 224 basis points will be formed to 235 basis points against the German bunds, due to the electoral process, before retreating to 185 basis points in the fourth quarter of 2023.
The Greek debt
On the other hand, the bank notes that more than 70% of the Greek debt is in the hands of the official sector, while in fact bonds with a total value of 64 billion euros are freely traded in the markets (13 billion euros in interest) and in this context he recommends buying Greek bonds against the Italian ones. The American bank predicts that the Greek economy will avoid a recession in 2023 by recording growth of 1%, with inflation next year moving to 6%, the fiscal deficit to 1.8% of GDP, the primary surplus to 1.1 % of GDP, with the debt-to-GDP ratio falling to 162%.