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Greek stocks losing outcast status as recession eases

Despite progress Greece faces political disputes that may derail its economic recovery.

Kostas Tsironis/Bloomberg News/File 2012

Despite progress Greece faces political disputes that may derail its economic recovery.

LONDON — Greek stocks, once shunned by investors concerned that a default would force the nation out of the euro, are beating almost every market in the world as a six-year recession eases and new investors consider purchases.

Since June 5, 2012, two weeks before MSCI Inc. gave notice it may reclassify Greece as an emerging market, the country’s ASE index has surged 146 percent, trimming the decline from its 2007 peak to 79 percent. The gains topped all 94 national benchmarks globally in the period, except Venezuela, according to data compiled by Bloomberg. Yields on Greece’s 10-year government bonds have dropped to 8.31 percent from a peak of 33.7 percent in March 2012.

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Paulson & Co. and JPMorgan Chase & Co. have bought shares as emerging market funds including Renaissance Capital Holdings Ltd. and Templeton Emerging Markets Group expressed interest. JPMorgan’s Francesco Conte, who dumped Greek stocks from his European Small Cap fund more than three years ago as the government’s budget deficit spiraled, has purchased stakes in retailer Jumbo and jewelry maker Folli Follie after the world’s biggest sovereign debt restructuring.

‘‘The outlook for the country has completely changed,’’ Conte, who manages about $2.8 billion in London, said by phone on Oct. 24.

The Greek recession shows signs of easing after the Mediterranean country cut wages and pensions and increased taxes to meet targets linked to its two bailouts from the European Union and the International Monetary Fund. Prime Minister Antonis Samaras plans to trim the budget deficit to 2.4 percent next year, down from 9 percent in 2012 and a peak of 15.7 percent in 2009. The government forecast on Oct. 7 that gross domestic product will increase 0.6 percent next year, the first annual expansion since 2007.

‘‘Only nine months ago, global sentiment was, ‘I don’t want to touch anything Greek, not even Greek yogurt,’ ” Anthimos Thomopoulos, deputy chief executive of Piraeus Bank SA in Athens, said by phone Wednesday. ‘‘Now investors don’t want to see anything but Greece. It’s a strange, idiosyncratic market, where you put money in a developed economy, albeit in distress, with emerging market type of growth expectations with a strong currency.’’

The nation, however, faces political disputes that may derail its recovery, with debt forecast to peak at 176 percent of gross domestic product this year. Samaras’s government, with a majority of just five in the 300-seat parliament, must approve a budget by the end of the year. In a Marc SA survey of voters between Oct. 1 and Oct. 7, the prime minister’s New Democracy party won 22.7 percent approval, while the main opposition Syriza party, which opposes the terms of Greece’s bailout, got 22.5 percent.

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The Greek recession has destroyed almost one-quarter of its economic output and sent unemployment surging to a record 27.6 percent.

After Coca-Cola HBC AG, the world’s second-biggest bottler of the soft drink, switched its primary listing to London from Athens in April, Greek equities have a market value of $83 billion, less than Kuwait with $107 billion and Qatar with $145 billion, data compiled by Bloomberg show. The country’s weighting in the MSCI World compares with 52 percent for US companies and 9.2 percent for Japanese stocks.

After the downgrade, the nation will have a weighting of as much as 0.4 percent of the MSCI Emerging Markets index, according to Deutsche Bank AG. The reclassification may allow Greek stocks that couldn’t meet the size or liquidity requirements to join MSCI’s measure for developed equities and benefit from inclusion in the ‘‘MSCI universe,’’ Priyal Mulji, a strategist at Deutsche Bank in London, wrote in a report Wednesday.

While emerging market fund managers await the final implementation of MSCI’s downgrade, hedge funds including billionaire John Paulson’s Paulson & Co. and Dan Loeb’s Third Point LLC have already bought into Greece.

Paulson, known for making $15 billion for his investors in 2007 by betting against subprime mortgages before the US housing collapse, bought shares in Alpha Bank SA in the third quarter as part of the lender’s recapitalization, a report to clients this month showed. His firm, which manages $18 billion, also bought warrants to purchase 7.41 additional shares for each common share.

Third Point said in April it would start a Greece-focused hedge fund, while Fairfax Financial Holdings Ltd., a conglomerate with investments from Canadian cattle feed to Irish banks, bought shares in two Greek companies this year.

As an emerging market, Greece will be grouped with other developing economies such as the Czech Republic and Hungary.

‘‘There are plenty of emerging market investors who haven’t looked at Greece for 12 years, and there’s clearly an economic recovery in the country,’’ Matthew Beesley, who helps oversee about $100 billion as head of equities at Henderson Global Investors Holdings Ltd. in London, said by phone on Oct. 29. ‘‘Greece is a very welcome addition to the benchmarks of emerging markets in eastern Europe.’’

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