The World’s Most Undervalued Stock Market

Back in 2011, I landed in the heart of a crisis…

Before there was Brexit, there was Grexit—Greece’s exit from the European Union. But unlike Britain’s self-imposed withdrawal, Greece was being threatened with expulsion.

At the time, the world was still struggling through the aftermath of the global financial crisis.

Greece’s economy was teetering on the brink of collapse due to its excessive debts, which totaled a massive 180% of its annual economic output. European leaders were openly considering whether to bail out Greece… or simply cut it loose amid fears it could bring down the whole EU.

When I arrived to report on this story, street protests were occurring daily.

ATMs were largely empty… and the Athens Stock Exchange was down nearly 80% from its autumn 2007 high.

And the country hadn’t even reached its low point. Stocks would fall further, eventually losing 90% of their value from peak to trough.

Ultimately, Greece would struggle through at least three bailout plans and all sorts of austerity measures imposed by the EU, the International Monetary Fund, and others, which hit Greek society hard.

But fast-forward a decade… and Greece is back.

The country is emerging as one of Europe’s hottest destinations for travel, investment, and overseas living.

Greek tourism, one of the country’s primary sources of economic fuel, set a record last year. The Bank of Greece reported that from January 2022 to October 2022 (the most recent data available), travel receipts totaled €17.1 billion ($18.2 billion), up 70.4% compared to the same period in 2021. Similarly, new visas are attracting digital nomads and retirees in droves.

Last year, Greece’s economy grew 5.5%, two percentage points faster than the EU average. And this year, it’s forecast to again exceed the EU’s economic growth rate—1.3% versus 0.9%.

Meanwhile, Greek wages are on a steadily higher trajectory. Unemployment is at a 12-year low. And there’s even talk of a potential budget surplus this year.

By the end of 2023, the country might finally have recovered from its debilitating debt crisis.

Yet, despite this upbeat outlook, Greece remains home to one of the cheapest stock markets on the planet… which presents an opportunity for risk-tolerant investors.

How Cheap are Greek Stocks?

Price-to-earnings ratio (P/E) is one of the key indicators used by investment pros to gauge the value of stocks. It compares the price of a company’s stock to how much earnings it generates per share.

For instance, if a company’s stock is priced at $100 per share, and the company produces $5 per share in annual earnings, the stock would have a P/E ratio of 20. Or to look at it another way… it would take 20 years of earnings to equal the cost of the stock.

So, the lower the P/E ratio, the cheaper the stock.

As I write this, the U.S. stock market as a whole has a P/E of more than 20. Much of Europe is in the low- to mid-teens. So is Japan. Singapore is in the high teens.

The Athens Stock Exchange… just 6.3.

That’s not to say that all those major markets are necessarily expensive (though one could argue the U.S. remains pricey relative to its usual level in the mid-teens).

Instead, it’s to point out just how cheap Greece is, despite the economy having progressed so far from those dark days of 2011, when I saw Molotov cocktails launched amid austerity protests.

The question is: Why is it so cheap?

The answer lies in perception.

You might imagine that big institutional investors, like the major banks and hedge funds, have teams of analysts studying every market on the planet. From my decades of experience in international finance, I can tell you that’s not the case.

When it comes to smaller stock markets, the big banks and hedge funds pay little to no attention… Instead, they tend to react (and overreact) to the news stories about those markets published by the major media outlets.

Greece hangs out on the more obscure end of the global stock market spectrum. It’s certainly not among the big bellwethers, such as the U.S., the U.K., Japan, China, France, and Germany. And it’s not even a player in the list of secondary markets, such as Brazil, Thailand, and Mexico.

At best, Greece is among the top tier of third-string markets, with the likes of Nigeria, Peru, and Argentina… despite being an EU economy.

So, since the 2011 financial crisis, the Greek market has largely been ignored by foreign institutional money. And this market has effectively gone nowhere for a dozen years now. Up a little, down a little. Basically sideways.

By the same token, part of the problem more recently is the perception that the Greek economy has notable ties to Russia.

Prior to the EU imposing sanctions on Russia for its invasion of Ukraine, Russians had been eager buyers of Greece’s Golden Visa, which offers immediate Greek residency in exchange for investment. That flow of money into the Greek economy has come to a halt.

In addition, the small number of prominent Greek companies focused on serving the Russian market have seen their operations pinched by the sanctions.

Ultimately, though, Russia is not nearly as important to Greece as perceptions hold. In 2019, before the war began, Russia was the 22nd largest source of foreign direct investment for Greece, or only about 0.6% of Greece’s total FDI inflows.

Even the Greek market has sloughed off “the Russia thing.” It’s basically doubled since a brief selloff in the immediate aftermath of the invasion. But it’s still incredibly cheap.

Alas, perceptions too often define reality… until proven wrong.

And nothing proves perceptions wrong in the world of investing like rising prices.

The Money is Starting to Pour In

I’ve been a global investor for nearly 30 years now, with brokerage accounts in more than a dozen countries at one point. And I traveled a large swath of the world back in the early 2010s to write a book on the rise of the non-Western consumer and the growth opportunities in that multidecade trend.

So, I’ve made a habit of tracking smaller markets like Greece and the economic fundamentals underpinning them.

It’s clear to me that while Greece’s stock market remains undervalued, all the economic indicators are trending in the right direction.

Foreign direct investment in the country hit an all-time high of nearly $1.2 billion in 2021 (the latest data), with even higher numbers expected when 2022 is reported. Most of that is coming from Greece’s EU family… a vote of confidence in the country’s economic direction.

Corporate profits, meanwhile, are on the ascent. In the last three years, for instance, cumulative earnings for publicly traded Greek companies have risen nearly five times—to $10.8 billion from $2.2 billion.

In that context, Greece’s cheap P/E coupled with its rebounding economy looks to be a very good combination for investors.

At some point, the big overseas institutional investors will notice this—they always do in the end—and they’ll invade the Greek stock market.

When that happens, stock markets often rise quickly. And the Greek stock market’s small size enhances its return potential—smaller markets are explosive markets.

Institutional investors need only put a relatively small amount of money to work in Greece to see that stock market race higher.

At the moment, the entire Greek stock market is worth roughly $50 billion— equal to a middling-sized company in America’s S&P 500 index. Agricultural giant Archers Daniels Midland, for instance, is right near $45 billion.

Where institutional investors will focus their efforts in Greece isn’t hard to gauge. They’ll be diving into the biggest names on the Athens Stock Exchange, because those are the easiest stocks to trade. The rationale there is pretty simple: A rising tide lifts all boats, and that tide starts with the biggest listed companies.

In Greece, that’s companies like Hellenic Telecommunications, a local phone company and internet provider. There are also a lot of big banks, such as Eurobank Ergasias, Alpha Bank, and the National Bank of Greece. And there’s Public Power Corp., the leading electrical power utility, as well as OPAP, the country’s top gambling company and the third-largest stock on the Athens exchange.

If the investment community as a whole shoveled just $5 to $10 billion into these top Greek stocks, we’d see the market jump by 10% to 20%… and $10 billion isn’t necessarily the vast sum it might appear to be. Apple alone sees $11 billion in average daily trading volume on the New York Stock Exchange.

For individual U.S. investors, buying Greek stocks can be a challenge (though Fidelity Investments does offer access to Greece through its International Stock Trading account).

A simpler strategy for U.S.-based investors is to look at the Global X MSCI Greece exchange-traded fund (ETF), trading under the symbol GREK. It’s available through U.S. brokerage firms. And it owns all the big-name stocks in Greece, such as Hellenic Telecom, Eurobank Ergasias, and OPAP, among others—basically all the names the institutional players will rush into as their interest in Greece grows.

I want to be clear at this point: I’m not recommending you run out and buy Greek stocks.

The Greek market is still speculative, and is best suited to highly risk-tolerant investors who can do their own research.

The wider point is the renaissance in Greece’s economy. What was once a basket case is now a burgeoning star of the European landscape.

Boasting a culture and coastline as ancient and awe-inspiring as any in the world, Greece was always destined to re-emerge on the world stage. And it’s drawing in the capital that says opportunity awaits…