Wednesday, October 22, 2014
Even though Greece’s bonds and stock have been hit by the markets this month, Morgan Stanley urges investors to bet on "Greecovery."
Morgan Stanley points out that, while Greece is still in deflation, which worsens the debt-to-GDP ratio, classic debt sustainability models fail to capture the effect of the extremely long maturity loans from the eurozone, which minimizes the impact of falling nominal economic output; i.e. Greece's official loans (not the bonds traded in the market) are becoming more and more some sort of semi-perpetual debt.
Hence, Morgan Stanley analysts conclude that given the improved risk/reward following the recent sell-off, they return to a constructive stance in Greek Government Bonds; they suggest that despite the near-term political uncertainty current valuations provide adequate protection and the economy is likely to start growing.
