Back in September, I wrote about the Greek stock market. I pointed out that widespread pessimism, low expectations, and attractive valuation created an easy hurdle for an upside surprise. Since then Greece has been on fire, up over 35%!
But despite an increase in price, the Greek market P/E has actually fallen from 4.7x down to 2.6x. That means earnings have risen faster than prices, and as a result, Greek stocks still look cheap following the big rally.
But be careful not to jump to any conclusions, or into the market. Financials are a big part of the Greek market, and my guess is banks are amending write-offs, marking assets to market, and making other adjustments that affect earnings. Meanwhile, Greek stocks look overbought and may see a short-term pullback. And of course, Greece isn’t totally in the clear yet as the political drama continues. See my September post for details.
If you took a position, you should be up nicely. If you were just looking for a short-term trade, then this may be an opportunity to take profits. For longer-term investors, this is a good opportunity to rebalance and adjust your positions.
Victor K. Lai, CFA
This blog is for informational purposes only. Nothing on this blog represents advice of any kind. Investing is inherently risky and involves the risk of potential loss. Victor Lai is long GREK.