Download CITI GREECE: The Riots

CITI GREECE: The Riots..thoughts/Mkt Implications
We are now on the 4th day of the Greek riots - and the country braces
for more violence on the day of the funeral of the teenager that lost
his life on Saturday night.
In the short-term the riots is bad news for consumer sentiment
especially in a critical month like December - yesterday the biggest
mall in Athens was closed and even Ermou street was shut (equivalent
of Oxford street). Beyond the looting and physical damages affecting
some retailers (one Intersport of Fourlis has burned down - a Sprider
store was destroyed etc) the impact on their business has so far been
limited. This because the riots started on Saturday night - on Sunday
shops were closed and Monday is generally a slow day for retailers.
Having said that, as the riots continue this becomes more significant.
Companies like Jumbo (Buy rated) may initially benefit from their non
high-street / central Athens presence but more negative consumer
sentiment is the last thing they need in December (40% of full year
profits).
Beyond the short-term impact, the key medium term risk is that the
riots add to the pressures on the centre-right New Democracy
government that now only has a one seat majority - and smaller
opposition political parties could use it to their advantage.
Calls for early elections are now likely to intensify (elections
normally due Sep 2011) and we would almost start to believe them.
Prior to the strikes we believed a cabinet reshuffle in early 2009
would have been enough to relieve the government from the pressure on
early elections and if any the government would at least wait for the
Euro parliament elections in June 2009. The risk from any early
elections is not with a government change to the main opposition
socialist party PASOK (beyond the risk of timing delays on policy
making) but that as it stands now both key parties will be unlikely to
get a majority in any elections. This would mean either a weak
coalition government or even more elections .... and in all
significant and prolonged political uncertainty.
Political uncertainty is bad news for some of our top picks like OPAP,
OTE, PPC that are owned / managed by the government - since it could
create management and even regulatory uncertainties - delay
privatisation plans and even their expansionary plans. Political
uncertainty is also bad news for the construction sector (delays in
public works).
We believe (and hope) the riots won't derail the E28bn banks bailout /
economy support plan - this is essential so that the Greek economy and
the Greek banking system has any chances of only a soft landing in
2009.
For sure the riots do not help the Greek 10-year bond spreads come
down from 172bp as they are now (yield of 4.8%).....
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