“We can see things moving in a constructive fashion in Brussels, it feels that we are seeing a conciliatory tone in Berlin, and in the IMF there is also a desire to deliver a pragmatic solution. All of this is looking more constructive. If Greece is the canary in the coal mine, the canary is looking as fit and well as it has done for the last couple of years,” he said.
While Mr. Dowding acknowledged that Greece still has its risks, he said its resurgence also bodes well for other high-yielding countries in the periphery, such as Portugal and Cyprus.
Some money managers call for cautious optimism on Greece.
“The backdrop remains one of an underlying improvement in Europe since the nadir of the European crisis in 2012,” said Nick Davis, European Income fund manager at Polar Capital Partners, based in London. “The ability of the eurozone to respond to shocks and crises has been gradually built out in recent years through new bailout mechanisms and a much more proactive (European Central Bank).”
Mr. Davis said this was evident in the “muted reaction by capital markets to the last iteration of Greek concerns in 2015.”
However, the firm is not encouraging complacency: “Many of the challenges, such as high debt and poor demographics, remain. A cautious approach remains appropriate to investing in the region given its undeniable challenges. But we are finding interesting investment opportunities amongst the volatility.”
Data provider EPFR Global's latest Global Country Selection Strategy report, which compares markets based on four-week average country flows, has Greece at “just the right side of the buy/sell divide,” said Cameron Brandt, director of research in Cambridge, Mass.
And the latest round of financing agreements has some money managers particularly interested in Greece's fixed-income markets. One source said the European Central Bank could start buying Greek sovereign bonds as early as June 2.
“The (ECB) has laid out some criteria, which if met, would make Greek government bonds eligible for the ECB's quantitative easing bond-buying program,” said Christine Johnson, head of fixed-income at Old Mutual Global Investors in London, in a statement in reaction to the deal. “Just think what a relief it would be if future government funding could be soaked up by the ECB.”
She said the eurozone's bailout fund, the European Stability Mechanism, could buy out the International Monetary Fund's obligations by issuing more of its own debt. The ESM can restructure these debts in ways unpalatable on a political level for the IMF, and Greek government bonds could escape any further restructuring. “A bond without threat of restructuring by a European country, that meets the criteria of the ECB's program — which could involve the monetary guardian hoovering up as much as €1.9 billion ($2.1 billion) of Greek government bonds a month — now that's worth playing for,” said Ms. Johnson.
There are also equity market opportunities.
“Greek banks offer opportunity to participate in Greece's recovery,” said Felicia Morrow, Washington-based chief investment officer and CEO of equities at Ashmore Group PLC. “Although banks have rallied since mid-February, they are roughly flat year-to-date because of a 64% drop in the first six weeks of 2016. Valuations remain at the low end of (the) EU bank valuation spectrum and close to 10-year lows on a price-to-book value basis vs. Greek banks' historical levels. The discount reflects still high country risk and poor asset quality.”
Ms. Morrow said country risk should fall as details become clear on Greece's debt restructuring, while banks are expected to become more profitable this year because of lower funding costs, an improving economy and leaner cost structures.
