Greek Stock Market Nosedives after Reopening as Banks Lead Decline

The Athens Stock Exchange has reopened for trading on Monday after being shut down for over a month. The aftermath of the missed payment to the International the Greek government that triggered a financial turmoil in the country has led to substantial losses for investors.

The Greek stock market lost just about 23 percent from the start of trading to recover some of the massive downside later and close 16 percent lower. The move lower has been led by local bank shares which tumbled reflecting weeks of closure and the lack of additional Emergency Liquidity Assistance (ELA) from the European Central Bank (ECB).

the Greek stock market lost just about 23 percent from the start of trading

The capital controls which the Greek government had to introduce due to the suspension of additional funds for Greek banks brought the economy of Greece to a standstill. While the country’s membership in the Eurozone looks set to continue, the uncertainty about the prospects for the economy are still prompting investors to remain cautious.

Two major banks have lost the most – both Piraeus Bank SA and the National Bank of Greece SA have hit the circuit breakers on the Athens Stock Exchange after hitting the limit down level of 30 percent.

Short selling on the Athens Stock Exchange remained restricted ,while mutual funds are barred from redemptions according to a statement published on the website of the ASE.

Controversial finance ministry decree

A controversial Finance ministry decree is putting local investors at a substantial disadvantage as aside from the mutual funds, all domestic investors may not commit new funds to the market. In contrast, foreign investors are free to buy and sell shares if they have previously been engaged in the market.

Local traders can only use new funds which may be transferred from abroad, or use their already existing deposits at Greek brokerage accounts.

Economic collapse

Reflecting the collapse of the Greek economy, the purchasing managers index (PMI) for July sank to an all time low of 30 points. The report is confirming the worst fears of creditors of the country that the Greek economy has virtually collapsed in the aftermath of the missed payment to the IMF.

A PMI reading of 50 reflects an economic stagnation where there is zero growth. Virtually all of the components of the economic sentiment survey have collapsed with New orders, employment, stocks and output universally tanking to levels unseen before. The manufacturing sector of the economy has lost the most jobs according to the readings.

The withdrawal limits of €60 ($65) per day have been the primary reason for the demand collapse.

An €80 billion ($87.6 billion) bailout programme has been questioned by the IMF’s board recently after the international institution has been reluctant to commit to its €20 billion ($22 billion) share.
The global lender of last resort is likely to take a position that renews pressure on European leaders to approve some form of debt relief for Greece.

With the capital controls remaining in place until the European Central Bank increases the ELA facility for the Greek banking system, the turmoil on the local markets is to persist.