The Greece Stock Market: This 12% Drop Came With A Warning

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Includes: ALBKY, FXE, GREK, IEV
by: Daniel Gilcher

Summary

We explain why the market in Greece crashed today.

We conclude that the market crash in Athens provides a typical point of maximum pessimism.

We show Alpha Bank as a typical example.

The news

Antonis Samras, the Greek PM announced early presidential elections for 17 December 2014 today. The president is voted by the parliament and needs to win 60% of the votes. The candidate the parliamentarians will vote for/against, is the 73 year old Stavros Dimas (a former EU commissary). If he is not voted for by the parliament, the country will have to hold general elections early next year. Investors fear, that the EU-skeptic party Sirzia might win in 2015.

The market's reaction

Today, the Greece market experienced its largest crash since 1987. Even the financial crisis of the last year never provided such a dramatic downturn.

(Source: Bloomberg)

The relative historical size of this price drop makes clear, how fearful and nervous the market participants in Greece are on this topic.

Careful and informed investors were well aware of this possibility. The unclear and stressful situation inside the Greek political sphere was discussed broadly. It is clear that for ongoing economic recovery the Greek state will have to keep a strict saving plan. We are convinced, that after the years of political and economical instability, these news are not (!) substantially new, nor is the potential risk unknown. In fact, Greece and the EU already have managed several more severe instances of political turmoil. With that in mind, we argue that the panic at the Greek market today was highly exaggerated. We believe that many investors overstate the event in its negative impact. We therefore think that this overall pessimism provides a good entry point for courageous investors who have already done their individual due diligence on Greek companies.

Alpha Bank

A good example is Alpha Bank (OTC: OTCPK:OTCPK:ALBKY), Greece's second largest bank, which also lost more than 10% today. The last Conference Call (see Q&A) already dealt particularly with the possibility of early general elections in early 2015. The management expressed its awareness of the situation and made clear that the company expects only minor influence via these events. A careful investor would have read the warning sings and checked the relevant arguments. We provided the evidence here. As proposed before, we generally agree with the management's position.

It is our opinion that the drop today provides a good buying opportunity for this specific company. We do not know how the political processes will turn out, but we are convinced that the current situation is not substantially worse than it was during the last years or yesterday. Therefore, we assume, that the market's reaction overstates the news.

Opinion

The Greek state is not going bankrupt, leaving the EU or the monetary union etc. Rough political discourse, including the scooping out of all available formal measures, is a necessary step in a democratic culture, especially under such generally tense circumstances. With that in mind, such measures per se are not negative signs. What has moved the market's today was raw fear about the future. Such pessimism is irrational and most of the time overstating the underlying factual reality. Diligent investors were well aware of this possibility and know today that with the development of the situation, similar events might come up in the near future. We believe that well-prepared investors will be able to profit from this latest panic.

Please note: Interested investors should only rely on their individual due diligence. Any purchases under such volatile markets should be made with greatest care.

Disclosure: The author is long ALBKY.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.