A Greece-focused hedge fund managed by Dromeus Capital Group, which has delivered investors over 50 per cent returns in its first six months, says it has turned cautious on Greek investments raising its cash balances for the first time since its inception.
Achilles Risvas, managing partner at Dromeus Capital, says: “Greek asset prices have been through a tremendous rally over the last three quarters but future prospects increasingly depend on budget execution and output recovery and we have doubts on both.”
Dromeus Capital says that markets have been too ready to celebrate the progress on the fiscal front, taking at face value the official forecasts.
Dromeus Capital says that official forecasts that the Greek economy will shrink by 4.2 per cent in 2013 may prove overly optimistic.
Nektarios Papagiannakopoulos, senior research analyst at Dromeus Capital, says: “There is no hard evidence that the economy is bottoming out.
“Years 2010-12 saw EUR10.1bn to EUR13.8bn of annual contraction in absolute terms but that was on a much lower fiscal tightening than the new measures being imposed on the Greek economy this year. That makes it extremely unlikely that GDP contraction will be less this year than last year – unless we see a much faster improvement in the second half of the year.”
Papagiannakopoulos explains that official forecasts assume that the impact of each “Euro” of austerity measures will have half the negative impact on the economy than has been the case up until now.
“Our model shows that there is a strong chance Greece will not delivery its primary surplus this year as tax revenues will be weaker than projected,” he says.
Risvas says: “Markets have celebrated the news on the primary surplus but we are concerned the ordinary budget forecasts are going to miss indirect and direct revenue expectations as well as social security costs. On our calculations an unbudgeted funding gap of EUR2bn to EUR4bn should be expected.”