Greeks Are Missing From The Greek Stock Market
Are local Greek investors benefiting from the market rebound?
The Greek stock market has seen remarkable growth, ranking among the top performers globally in recent years. Surprisingly, it has even matched the performance of the US markets over the past half-decade, a noteworthy achievement. However, while the Greek stock market surges forward, Greek households are being left behind, with most having little to no exposure to stocks whatsoever.
Invest Like an American
This post was motivated by a compelling statistic reported by the Wall Street Journal: a record 58% of Americans are invested in the stock market. While we've touched on this issue before, the reality remains—Greece has one of the lowest stock market participation rates in Europe. Less than 10% of Greek households possess any form of investment account or hold stocks and other securities.
So, why this underinvestment among Greek households? Simple really, they don’t have any extra savings to invest. Greece stands out as one of the few countries to experience a negative savings rate, making it challenging to invest when they struggle to meet basic needs and expenses.
Another factor is the heavy reliance on pensions. Like many European countries, Greek households with high expectations from government pensions often see little incentive to invest independently. However, the fragility of the Greek pension system raises concerns about its reliability for future generations, prompting younger Greeks to seek external wealth creation methods for retirement.
Additionally, several other factors feed into this dynamic. Greek citizens have a deep mistrust of both the government and capital markets, often viewing it as a casino. Greece also lacks convenient and cost-effective options for easily and cheaply purchasing stocks and securities.
Foreign Influence on The ATHEX
The presence of foreign investors in the Greek stock market isn't a recent phenomenon; it's a common trend in smaller markets where external investors often hold a significant market share. Data from the Athens Stock Exchange reveals that over 60% of the market is owned by foreign investors, while the share of local investors remains considerably lower, even lower than in 2009.
Greek Investors Slowly Catching On
There is however a glimmer of hope as the local population begins to recognize the market's strong performance. Flows into Greek mutual funds have finally reversed, moving upwards after years of outflows. While Greek mutual funds face their own set of issues, such as high costs and reliance on local bank distribution channels, this signals a positive sentiment shift.
Financial Literacy and Accessible Tools
It's cliche, but it bears repeating—there's a pressing need for improved financial literacy, especially among the youth. While Greeks acknowledge the importance of investing, they lack the necessary incentives and tools. In contrast, investors in the United States can access vehicles like Individual Retirement Accounts (IRAs) for tax-efficient investing. Efforts to promote financial literacy are underway, spearheaded by organizations like the OECD and EFAMA.
Moreover, Greek investors now have access to a range of new options to enter the market. Eurobank's acquisition of a stake in Plum, a UK-based money management and investing app, presents one avenue. Another is Wealthyhood, a Greek-founded firm focused on providing investors with access to low-cost investments.
In summary, while the Greek stock market thrives, local household participation remains low. Encouragingly, signs of change include growing interest in Greek mutual funds and the emergence of accessible investment tools. However, addressing financial literacy is crucial for fostering a more inclusive investment environment in Greece.
Excellent write-up!
Once bitten, twice shy #2000