national elections 2023 in Greece is now strongly included in the “equation” of their estimates international analysts for the country’s performance, with JP Morgan deeming it a “key” moment in terms of recovering investment grade as well as the price of Greek bonds.

According to an American bank, Hellas he is likely to restore investment levels after the election, in late 2023 or early 2024. Thus, he recommends forming positive positions (overweight) in Greek government bonds, but after the elections. While he sees limited political risk in the country – and overall he estimates that 2023 will be a more peaceful year in the European Union with no significant populist or anti-European risks from upcoming elections in many countries, while in his base case New Democracy remains in government – but believes that the new electoral law “clouds” the landscape for investors and increases uncertainty.

It is worth noting that the “political risk” has already been pointed out by houses and institutions. Moody’s said that while the risk of significant changes in economic policy is low, it estimates that there will be two rounds of elections and that the formation of the next Greek government will be a long process that will take several weeks or more due to the new election law.

The commission said this week that spending on support measures against the energy crisis in Greece was among the highest in the EU, but most of them were untargeted, while, according to data OECD, potential fiscal failure could also delay reaching investment grade. The State Budget Office in Parliament, for its part, pointed out the political risk that may arise in connection with the possible difficulties of forming a government due to political affiliation and an aggravated climate.

JP Morgan estimates that the new election law is clouding the landscape for investors and increasing uncertainty.

Greece’s July 2023 election is uncertain, according to JP Morgan, as it is the first in a couple of decades that the party that wins the majority will receive a 50-seat bonus. As he points out, the New Democracy party still leads the polls with a percentage of about 35% versus SYRIZA’s 28%, which is very similar to the 2019 election result. will probably fail to win a majority of seats in parliament.

JP Morgan estimates that New Democracy will win the election and possibly form a coalition government while continuing to offer a constructive political agenda. However, at the same time, he sees the risks. The biggest one is that forming a majority coalition will be a lengthy process, as the number of possible coalition parties is limited. In addition, there is a risk that the New Democracy will have to rule the country with a minority government. However, it is sensational that JP Morgan does not talk about dual voting at all, while most of the chambers, in connection with the new election law, provide for two rounds of elections in the country …

The aforementioned “cloudy” picture created by the electoral process is expected to put pressure on Greek bonds, according to the US bank, beyond the pressure normally expected on all eurozone bonds in the first quarter of 2023 due to continued uncertainty on the macroeconomic front. and the monetary policy front, bond supply pressure and quantitative tightening (QT) to be implemented by the ECB. However, based on the basic scenario that the new government will not deviate significantly from current policies, JP Morgan emphasizes that the election is expected to be an attractive opportunity for investors to purchase Greek bonds. According to his estimates, the spread of Greek 10-year bonds from 224 b.p. today, in the first quarter of 2023, it will move by 225 bp, in the second quarter by 235 bp, in the third quarter by 200 bp. and in the fourth quarter will drop significantly to 185 m.p.

At the same time, as JP Morgan’s forecasts suggest, the pre-election scenario suggests a delay in the recovery of the investment rating, since the achievement of this milestone “is likely after the elections, in late 2023 or early 2024.”

However, this is something that is widely appreciated as rating agencies tend to wait for a new political landscape to take shape (if the country is in an election period) before taking the next step.