By Caitlin Ostroff, markets reporter
Greek stocks are headed for their best year in two decades amid investors’ optimism that a new government will be able to pare back austerity measures and revive the debt-laden economy.
The Athex Composite index has risen 35% since the end of last year, making it the best performer in Europe this year and putting the benchmark on track for its biggest advance since 1999, when the value of the gauge doubled.
The rally began at the end of December as investors bet that then-Prime Minister Alexis Tsipras—who lost popularity with both businesses and middle-class households after raising taxes to meet budget targets—would be replaced by Kyriakos Mitsotakis.
Investors are now looking to Mr. Mitsotakis, who took power last month, to deliver on his election promises of lowering taxes and cutting through red tape on investment projects to bolster economic growth.
“There’s been a turning point for investor perception,” said Giuseppe di Mino, a managing partner at London-based Amber Capital. “It will be very interesting to see what they do, beyond what they say they will do.”
Amber Capital, which has $1.5 billion in assets under management, has been investing in Greece’s consumer product companies, Mr. di Mino said. His firm currently owns less than 2% of Athens-based online-gaming company OPAP, but is considering buying more of the stock if the new government is able to deliver on promises to boost economic activity, he said.
The change in investor sentiment—underscored by an increase in the price-to-earnings ratio on the Athex index to 14.1, from 10.4 at the end of 2018—marks a sharp turnaround for Greek equities.
They’ve gone from trading at a discount in relation to the pan-continental Stoxx Europe 600 index in December, to a premium in recent weeks. And that’s despite an increase in the valuations on the broader gauge in the same period.
Still, Greece’s benchmark equity index remains 84% below its October 2007 level, while its economy has shrunk almost 25%.
The prospects for the economy also remain grim, with high unemployment rates, and tax rates that are suffocating business activity. Red tape and a slow-moving legal system have long acted as a deterrent to foreign investments.
That is a main reason some analysts remain skeptical that the rally can continue, particularly if momentum reverses.
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