Greece's stock market is poised for a significant upgrade, with various index providers reclassifying it to Developed Market status. FTSE Russell will upgrade 62 Greek stocks to its developed market indices on September 21, and STOXX will follow suit on the same date. MSCI also plans to reclassify Greece to Developed Market status in May 2027. These upgrades signify Greece's economic recovery and are expected to attract substantial foreign investment, boost liquidity, and enhance the market's overall profile.
JPMorgan has upgraded its rating on Greek equities from Neutral to Overweight, anticipating roughly $1 billion in total inflows due to these reclassifications. Specifically, about $956 million is projected from Greece's inclusion in the EuroStoxx index at the September 18 rebalance. Nine Greek stocks, including the country's four largest banks (National Bank of Greece, Eurobank, Piraeus Bank, and Alpha Bank), are expected to be added, with these banks receiving an estimated $288.6 million, $232.5 million, $220.1 million, and $146.6 million respectively. Other companies like PPC, Metlen, OTE, GEK TERNA, and Aegean Airlines are also expected to see significant inflows.
A unique eight-month window is highlighted by analysts, where Greece will be included in the EuroStoxx benchmark while remaining in the MSCI Emerging Markets index until May 2027. This overlap is expected to position Greek securities favorably for both pan-European and emerging-market investors. However, JPMorgan has expressed concerns that after the full transition to developed market status, Greece's diminished weight of 37 basis points in MSCI Europe could reduce investor focus, recalling a similar drop in interest after a 2001 upgrade.
Despite recent rallies, Greek stocks are still considered modestly cheap. Greek banks trade at approximately a 10% discount to their European counterparts and about a 6% discount to peer banks in emerging markets. According to JPMorgan, the discount on Greek banks relative to Western European banks, with a forward P/E ratio of 9.6 times compared to 10.6 times for European banks, is excessively large and not justified by their improved profitability and capital ratios. Analysts from UBS also note a discount of approximately 12% for the four major Greek banks in terms of P/E ratio compared to European banks.
The improved financial health of Greek banks is underscored by Moody's estimates of total net profits reaching $2.5 billion for the first half of the year, driven by credit expansion, accelerated commission income, and controlled credit risk costs. Net interest income across the four banks rose by 4.6% year-over-year to $4.3 billion, reversing a previous decline, and signaling a strong investment narrative with increased lending and high capital adequacy.
