JP Morgan: Greece’s nvestment grade guaranteed by New Democracy

A second term of New Democracy under the leadership of Kyriakos Mitsotakis is the best guarantee for Greece to stay on track with its fiscal and reform commitments. This is stated in a report by JP Morgan, in which it emphasizes that the Greek economy will continue to register strong growth rates, however, the recovery of the investment grade will not come earlier than next September. Regarding  Greek bonds, the analysts of the American bank do not recommend their purchase as they consider that they are overweight in relation to the current conditions in the market.

JP Morgan believes New Democracy will win the June 25 election, following its landslide victory in May’s contest, winning by a much larger margin than expected. The system of simple proportionality did not allow the formation of an independent government from the first electoral contest. However, the bonus of the additional seats in the second electoral contest will bring the New Democracy into the government of the country for a second consecutive term, having ensured self-reliance. This will avoid political ferment for the formation of a coalition government.

The Greek economy will continue to grow at a strong pace, JP Morgan analysts estimate, which will mean the return of the investment grade, which, however, is not expected to come before next September.

Three of the four rating agencies recognized by the Eurosystem (Fitch, DBRS and Standard & Poor’s) rate Greek debt one level below investment grade, with the first rating agency “making an appointment” next Friday, publishing its assessment of the Greek economy.

JP Morgan considers that with the second elections pending, it is very difficult for Fitch to proceed with an upgrade of Greece, and it advances the second half of the year for this to happen, from DBRS on September 8, from Standard & Poor’s on 20 October and by Fitch on 1 December. It remains questionable how Moody’s will act, which places the Greek debt three notches below the investment grade.

For Greek bonds, analysts believe that they are currently significantly outperforming the corresponding government bonds of the Eurozone countries. This overperformance is especially noticeable after May 21 and the widespread dominance of New Democracy.