Index entry means billion-dollar boost for Greek stocks

Fri Nov 8, 2013 11:06am EST

* Greek index to attract fresh international money

* Flows could hit $3 billion

* Top three banks the biggest new MSCI EM index entrants

By Sujata Rao and Simon Jessop

LONDON, Nov 8 (Reuters) - Greece's leading companies are set for a multi-billion-dollar boost in stock market value as a result of their inclusion in MSCI's flagship emerging market index, improving their appeal to investors as they struggle in a deep recession.

Ten Greek companies will enter MSCI's Emerging Markets index on Nov. 27, the index provider said on Thursday. The Greek bourse had already been surging in heavy volume as international investors took a fresh look at a country whose debt crisis hammered asset values.

MSCI, which has $7 trillion benchmarked against its indices, said National Bank of Greece, Piraeus Bank and Alpha Bank would be the biggest entrants.

Greece is being relegated from the top, developed market index in what might seem like a major setback. But many analysts reckon Greece will benefit hugely from the move, which follows similar action from index providers Russell Indexes and Standard & Poor's. FTSE may also follow suit.

"It is in the longer term a much more positive outcome for Greece," said Ludovic Moreau, global head of portfolio trading strategies at Citi.

Moreau estimates passive, index-tracking funds will pump $500 million into the affected companies, while an additional $350 million could come from semi-passive funds that are allowed to track the index with more magnitude.

He said Greece's tiny 0.02 percent weighting in the MSCI Developed index had been a huge disadvantage as it allowed many passive investors to ditch it altogether from their portfolios.

With Greece's share of the emerging index set to total 0.4 percent and nearly 4 percent of MSCI's Emerging Europe index , that is set to change.

Adding to the benefits to the Greek bourse is the potential money from "active" investors, who pick stocks they like based on an assessment of the company itself, rather than its membership of any index. Many of them specialise in emerging markets and, to now, were unable to invest in Greek stocks.

Money coming in from those investors may represent as many as three to four times the passive volumes, Moreau said, adding: "We estimate around $2-3 billion of exposure that could come from active fund managers."

Another bank, Renaissance Capital, predicted inflows of $520 million into Greek shares from exchange-traded funds.

"The effect of MSCI EM Index inclusion is likely to be two-way for larger stocks, which will simply transition from the developed to the EM Index, and more positive for the smaller names currently not included in the MSCI Developed Greece Index, which will become part of the MSCI Emerging Greece Index," Renaissance said.

The other Greek additions to MSCI's Emerging Market index are consumer goods firm Folli Follie, Hellenic Petroleum, retailer Jumbo, lottery firm OPAP , telecom company OTE, utility Public Power Corp and Titan Cement.

If the new flows materialise, the potential impact is huge. Citi calculates, for instance, that just passive and semi-passive flows would amount to between 10 and 30 times the average daily trading volume on some of the companies.

Some of those expectations are reflected already in recent moves in the Greek bourse, which is up 30 percent in 2013, outpacing regional peers, on tentative signs of recovery.

Active money has shifted into the bourse ahead of the index shuffle, helping send October volumes on the Athens exchange to their highest since June 2012.

A subset of 11 companies that were expected to enter the emerging markets index has risen more than 50 percent in absolute dollar terms since the first announcement of Greece's demotion on June 11, 2013, Deutsche Bank said.

"We have seen a lot of interest in finding out about the Greek market and companies, most emerging market funds have done quite a bit of due diligence on it," said John-Paul Smith, head of emerging equity strategy at Deutsche Bank in London. (Additional reporting by Sudip Kar-Gupta and Carolyn Cohn in London and Angeliki Koutantou and Lefteris Papadimas in Athens; editing by Tom Pfeiffer)

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