by Anthony Harrington
In its latest quarterly report on the Greek economy, the Athens-based research institute The Foundation for Economic and Industrial Research (IOBE), says that the Greek economy is at a turning point and could finally start to expand during the course of 2014. The main point is that the country's economy is finally stabilizing after a six year recession, and if it enjoys the same increase in tourism revenues that it saw in February, when tourist numbers were up by 25%, then the economy is likely to see a modest expansion, it said.
This is a decidedly more upbeat forecast than the IOBE gave back in January 2014, when it reported estimates that Greece's GDP probably contracted by as much as 4% through 2013. However, even back in January, the IOBE predicted that the economy would steady in 2014. Greece's lengthy negotiations with the troika were the key, since this was all about determining the fiscal measures for the next three years, along with the restructuring of public sector employment. The fact that Greece holds the presidency of the EU during the first half of 2014 may well also play well around the world and give a better gloss on the country in the eyes of potential investors, the IOBE said in its January report.
The early part of 2014 was taken up with the lengthy negotiations between the Greek government and the troika, with the main task being to determine the fiscal measures Greece will need to take for the next three years, through to 2017, and on restructuring public sector employment. According to the IOBE, Greece's unemployment should fall to 26% in 2014, which is still a staggeringly high number, but is a further improvement on the 27.2% figure reported for the end of December 2013.
The improvements in the Greek economy, while representing some progress on structural reforms, have been driven by a substantial pick up in the country's tourism industry. For some investors, this improvement has prompted a renewed interest in Greek bonds, which are seen as carrying a high rate of return for a decreasing risk. It takes a little convoluted thinking to get to this point when one considers all the talk of a Greek implosion and messy exit from the eurozone, which dominated the headlines not so long ago. But evaluating risks that ordinary investors shy away from is what hedge funds are all about.
Prominent amongst those with an appetite for risky eurozone peripheral bonds is the Canadian financier Prem Watsa, who has been betting on both Irish and Greek investments recently, with a particular focus on Greece. Watsa, through his insurance and investment company, Fairfax Financial Holdings, is at the forefront of a group of international investors putting some $2 billion into Greece's troubled Eurobank. The Hellenic Financial Stability Fund (HFSF) owns 95% of the bailed out Eurobank and has agreed a share sale to the consortium as a way of plugging Eurobank's $4.3 billion hole in its capital reserves.
Back in June last year, Watsa told the media that the trick to investing in troubled EU economies is to be the first to spot when a particular economy has bottomed out, making the risk of investing much more acceptable. Fairfax Holdings has already seen the investment it made in Ireland's biggest bank back in 2011 grow by some 50% and Watsa clearly feels that Eurobank could be another coup of a similar stripe. In a rare telephone interview, he told Reuters:
"In terms of the economy, the last four or five years have been very tough for Greece. The economy has (shrunk) very significantly, unemployment is high. But on the other hand, we think that perhaps a bottom has been reached."
Watsa, it may be worth noting, famously rode to the rescue of ailing handset manufacturer BlackBerry (NASDAQ:BBRY) in December 2013, which is another bet that many would not have made. Fairfax Financial has a portfolio of some $23 billion, but even so, investing $4.7 billion in BlackBerry at a time when the handset manufacturer is finding its products outclassed by the new generation of smart phones, takes some doing.
Watsa's investment skills, however, have made some call him Canada's answer to Warren Buffett. He made billions in profit betting against the U.S. housing market bubble and his $407 million investment in the Bank of Ireland seems to be paying off, so who knows? The Greeks will be hoping that his nose for profit has led him in the right direction in their case and that their long period of purgatory might just be, if not coming to a close, then at least lightening a little. Besides, it's nice to see someone other than China and the troika investing in Greece!