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JP Morgan: Neutral on Greek stocks, sees a dirty exit from the program


JP Morgan keeps a neutral stance on Greek stocks, while it forecasts a dirty exit from the program with a precautionary credit line in place. As the bank stresses, the fourth and final review of the current bailout is in progress and is expected to be completed by 21st June, which will will lead to the disbursement of €11.7bn loan tranche.

According to JP Morgan, the Greek 2-year yields, the progress in the reduction of NPEs and Greek state budget, are crucial drivers for Greece and Greek assets. Greek 2-year yields are now trading at 1.40% (-353bps below the 2017 avg.) and 119bps below UST 2 years. Greek banks reduced their NPEs by €4.7bn to €95.7bn (43.1% of overall loan book) in Q4 2017 vs. a target €95.9bn (48.5%). The Greek state budget showed a primary surplus of €2.3bn in the January-April period.

The next catalyst for Greece will be a potential debt relief announcement by the European creditors that could lead to Greek bonds entry into the ECB’s QE programme. JP Morgan sees a most likely scenario of inclusion of Greek bonds in ECB’s QE from mid-August. Under its baseline scenario, the ECB will continue its APP net-purchases at €30bn/month only until September. Banks remain the cheapest sector while the resolution of NPEs seems to be accelerating with the sales of NPLs beginning to take off. The result of the ECB stress tests for Greek banks showed that there wasn’t an immediate need for new funding, JPM adds.

Overall, given the high-risk profile and small size of the market in both CEEMEA and GEM, the bank is happy with a Neutral weighting. One key macro risk to the bull case would be a premature end to ECB QE, which could put upward pressure on peripheral European spreads.


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