Is The Greek Success Story Vulnerable?
How vulnerable and uncertain is the Greek stock market? How influential is the role of the Greek government?
These are two fundamental questions underlying the highly unstable (ASE: INDEX) that tends to have capitalization issues.
Viohalco (ASE: BIOX) was another greek company that left the FTSE/ATHEX Large Cap. Alternatively, it was another “victim” of the political instability and weakness. The company moved its basis to belgium as a result of the higher taxes imposed by the Greek government.
The bailout packages as well as the high corporate taxes squeezed the internal companies. The corporate tax on undistributed profit was raised from 20 to 26 percent, despite Greek Prime minister Antonis Samaras stating that incorporation of a flat 15 percent corporate tax rate will occur.
It seems that Viohalco followed in Fage’s and Coca Cola Hellenic’s (ASE: EEE) footsteps. Those two companies moved their basis too, to Luxembourg and Switzerland, respectively.
The secession of the large companies underlines that the internal economic situation is deteriorating and that the government is too weak to react. Greek companies appear to be helpless since the government does not stand by with them. The political authorities should have benefited and protected those companies in difficult periods so as to recover quickly. Creating a sustainable economic environment including a stable corporate taxation would be one measure.
Apart from the fact that the political conditions could be blamed for the secession, what is really significant is the fact that the image of the Greek stock market is diluted.
When large companies like Viohalco, which weighs 2.5 percent on the benchmark index, pull out from the Greek market, the environment is becoming less attracted for the investors.
Investors may concern about corporate tax issues that might affect other companies in the market too.
Greek companies with a considerable number of their revenues deriving from the foreign markets (60 percent of its sales to European Union countries) must be included in the (ASE: INDEX) to have an appealing injection of cash. But why?
It is an irrefutable fact that only a very small number of Greek companies have revenues from foreign markets. Thus, when corporations such as Viohalco manage to cover the bad revenues from the weak domestic market (Greek market) through exports, investments may rise. It really very risky to trade companies in Greece without export capabilities. The Greek stock market is very poor because companies that have revenues only from the domestic market will not be capable enough to come out of the recession.
Imagine a second-hand car retailer that has twenty cars. Nineteen of them are affordable cars, yet the one is a supercar. The supercar is considered to be the USP (Unique Selling Point) of the business. Therefore, with this example, we can perceive how the Greek stock market is correlated with the second-hand car retailer. The ASE includes many affordable “cars” but has some supercars such as Viohalco among others
In other words, Viohalco and Coca Cola Hellenic (NYSE: CCH) could be opportunities for an investor to research the future potential of the Greek stock market. When large capitalized companies are leaving the index, the whole market becomes less capitalized and less attractive since overall market value is decreasing.
The idea of the Greek success story has potential, but is very vulnerable too. The stock market will only skyrocket when the real economy will recover. In order for this to happen, pivotal reforms must be taken place. Reforms must create a viable and healthy economic environment for the Greek companies, where the recession is still on the epicenter.
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