Greek Business File, September-October 2020, No 127

Comment by Nick Papandreou


Taking advantage of strange capitalism

Even the most isolated human on the planet knows we are living in unusual times. What seems surprising is the incredible robustness of the stock market and the continued growth of the indices. The US market grew by billions since late March, and many investors are swimmingly happy.

Tesla stock prices have surged 400% so far this year. Investors are buying shares even in unprofitable companies like Moderna, Inc. and Nikola Corp. As for the FAANGs? Due to Covid-19, more aspects of people’s lives are shifting online, and the FAANG companies are the biggest beneficiaries. Amazon saw a 70% gain in 2020, Apple a 50% and the new iPhone 12 is just around the corner to further boost sales, Facebook keeps earning more cash and is soon launching a competitor to Tik-Tok called Instagram Reels. And even though Google saw a drop in revenues for the first time, stock prices still went up by over 30% since March.

Yet one would have thought that the economic depression, the rise in unemployment, the pandemic itself and the uncertainty of the global economy and climate change would somehow be reflected in that bastion of capitalism, Wall Street.

For sure, most firms are not doing so well. Thousands have declared bankruptcy, while others are on the verge of doing so. Known companies like Hertz, GNC, Cirque de Soleil, Brooks Brothers, JC Penney, J Crew, Lord and Taylor, and Neiman Marcus among others all filed for bankruptcy. They might reappear in a new e-commerce space but their existing business model meant they could no longer survive.

What does all this mean for us in Greece? The new economy goes digital and rewards the companies that are in e-commerce, from tele-medicine to specialized tourism. Clearly, the future is in the digital space. This increases the need for the country to move ahead with its digital infrastructure and the new 5G. It means moving ahead with digital government to reduce the tangled bureaucracy for businesses and investors. It means shaping a completely new form of tourism that will respond to social distancing requirements and altered internal spaces in hotels and even offices.

However, if we wish to be both cynical and practical, Greece cannot stay out of the global stock markets. When returns on pension funds here are down to zero, it is time for these funds to find a way to profit from the incredible redistribution of wealth going on right now. We can watch the FAANGs and other companies in China and Hong Kong grow, and shake our heads in disbelief. Or we can engage with smart investments and put a portion of our state savings in companies that may even double their returns in a year.

This is not an unknown model. Many countries are talking about it and some are even doing it. Imagine if a Greek pension fund had put even ten percent of its savings in Apple or Amazon ten years ago? Of course, this sort of investments is subject to great criticism by local pundits, and there are serious counterarguments.

The new government is not averse to such positioning. New laws were passed just this spring that allow for the largest pension fund in Greece (EFKA) to invest more freely, without the old restrictions that allowed it to deposit their funds in the central bank of Greece. It is rumored that their first venture will be in the green energy sector, where returns are between 7% and 12% (solar and wind mostly).

There is precedent in other countries. One of Australia’s largest pension funds, UniSuper, is buying Tesla, Microsoft and Google. They expect the tech giants to keep growing. They have investments in solid utilities but also in alternative energy companies like Vestas and SolarEdge. These are unusual in the pension world but I believe it is a model worth considering and following closely.

Of course, one large reason for the disconnect between the real economy and the stock market are the global injections of liquidity into the system from all the major central banks. This has reduced the cost of borrowing. When it is not clear which traditional sectors will survive, it is easier unfortunately to put money into the stock market in the hope of quick gains. This is only one distortion caused by the lopsided global response to dealing with the pandemic.

But that is the big picture. The short message is that Greece needs to be market savvy. Rather than stand on the sidelines as an onlooker, Greece can easily adapt to the new reality and take advantage of capitalism’s inbred strangeness.