Disconnect between Greek recovery data and equity valuations

Is the Greek economy on a recovery path? You would not know by looking at equity valuations.

Greece, whose GDP contraction began in 2008, has depended on lenders support since 2010. 2015 was a turbulent year for Greece, with capital controls, the agreement of a third bailout program, important reforms in order to obtain this third bailout, and elections due to the lack of support for those reforms from the radical arm of Syriza. 2016 was calmer with the first review of the third bailout completed.

Could 2017 be the year in which Greece takes off? Let us have a look at the recent data:

Is GDP Accelerating?

Real GDP Growth YoY

Real GDP recovered in 2013 and has been in a narrow band (excluding the months of the implementation of capital controls in 2015) and now appears to be headed higher in late 2016.

Unemployment Peaked Years Ago

Unemployment Rate Seasonally Adjusted

Unemployment rate peaked in 2013 and has been declining since then.

Construction Is Starting to Rebound

Construction Share of GDP

As one of the main motors of the economy we can see that construction seems to have bottomed (most likely due to highway concessions that are being finalized) and has a long way to return to its normal levels. Stabilization and rebound of housing prices will go a long way helping that happen. If you are wondering where the Greek economic rebound will come from, here is one of the drivers.

Housing Prices near Stabilization

House Prices Index (12/31/07 = 100) and 4Q Change

Housing prices appear to need a little more time to stabilize and start a recovery. This is important for a restart of residential construction.

Retail Sales Are Now Positive

Retail Sales YoY

Retail sales year over year (YoY) are back into positive terrain.

Retail Confidence Back to Pre-Crisis Levels

EU Retail Trade Confidence

New Corporate Loan Flows Are Accelerating

The successful recapitalization of the main Greek banks has helped with the recovery of the banking sector as the surge in corporate loans shows.

Greek Equities Valuations Are Still At Rock Bottom

Price to Book Value

Greece is the most undervalued market we know of today. We can see Greek equities have almost a 3x upside to 2014 valuations and 5x to pre-crisis valuations. It seems the fundamentals are better than the valuations imply.

The debt situation (second review and long-term sustainability) is the big pending. Hopefully the gaps are not that big and no one wants to bring Grexit back on to the table. We will see how the drama unfolds… in the meantime we will try to focus on the data as opposed to the drama.