The Greek Stock Market: Fundamental or Speculative Growth?

Remember the "greed is good" quote from the movie Wall Street? That quote effectively describes what is currently happening in the Greek stock market.

Great volumes of trading, as well as significantly higher returns, are some of this "arena's" main features. Big players like hedge funds do penetrate the market, making the conditions even more comfortable for the small investors.
But what behind such great growth?. Many argue macroeconomic results actually moved up the market, yet others would say that constant improving conditions in the economy are behind the market's rise.
Regarding the first argument, macroeconomics do not give the perception that something extremely good has taken place. Unemployment is skyrocketing and is expected to break the 30 percet level in the near term. Political conditions are deteriorating, as government can not negotiate with the so-called Troika -- the inspectors from the European Central Bank, the IMF and the European Commissions -- who keep an eye on Greece's financial commitments.

What is actually traded is the improving conditions; a focus on the fact that Greece did manage to stay in the eurozone and did manage to take sufficient austerity measures to avoid negative consequences.

On the other hand, if you analyze "improving conditions,"  you'll see there is no way this is fundamentally correct. Imaging that  Company A was due to go bankrupt last year, but now managed to avoid this; in this case this is a good scenario that will rise the share price. The same perception also exists regarding the Athens Stock Exchange (ASE).

Greece has not left from the eurozone yet, but fundamentally it is busted. This means all the criteria that makes an investment really healthy and good are susceptible. Debt is still unviable, the political instability continues, European officials are unable to decide how the situation will be improved and, lastly, social unrest is significantly high.
With all that in mind, can someone please explain how these conditions make up a good investment? The answer is a correlation of the terms "time" and "bet," which are equal to speculation. Traders do make their own bets. They also choose their security and select their timeframe.
The terms "bet" and "time" are interacting together because they actually give the idea of speculation. For example, within one month the ASE General Index increased by 13 percent, as well as some blue chip stocks such as the gaming firm OPAP (ASE: OPAP.AT) increased 18.44 percent. Also, during this month UBS UBS, Bank of America BAC, Deutsche Bank DB and HSBC HSBC bought millions of shares at Alpha Bank (ASE: ALPHA.AT). Moreover, Morgan Stanley (NYSE: MS) bought 760,000 shares at Piraeus Bank (ASE: TPEIR.AT).

Those big players have entered the market because the financial sector is undervalued. Greek banks got busted after the Greek haircut, and thus their market value has reached the lowest levels. Even when such institutions buy shares, they do actually know that Greek banks are not sufficiently capitalized. The great number of bad loans, as well as the fact that a number of depositors have moved their money to safer places, do not give an argument to go long.

As a trader, the decision for going long to the Greek stock market is:

• The Idea of the Greek Success Story: The Country Managed to Survive
• The degradation of the country to the MSCI Emerging Markets Index by the end of November. Such a downgrade moves more and more speculative funds in the market, because they are looking for great returns through the great volatilities.
• Greek banks reached historically low levels and as a result, after the successful recapitalization that took place in the beginning of the summer, the banks seems more attractive. Do not forget, however, that most of the big players have added some of the Greek banks in their portfolios. The great volumes that have been trading in the financial sector have moved the whole market up.

Rallies

1. The General index increased from 476.36 on June 6, last year to 894.01 on October 22, 2012. It also increased from 800.32 on July 15, 2013 to 1,202 on October 22.

It is crucial to analyse the importance of those two rallies. The first rally that took place from June 2012 to October 2012 was actually trading on the event of a stabilized political system. The fact that the elections of 2012 chose a government that campaigned to impose austerity measures and save Greece has a psychological influence in the market. In other words, the outcome of the elections satisfied the markets very much. Therefore, the first rally can be easily described as the "immediate death rejection phase".
The Greek elections were very important, with the possibility of the "Grexit" -- shorthand for "Greek euro exit" -- great because left wing parties did want to keep up with EU decisions. As a result the rally that followed can be described as a "testing" phase. Markets and investors did test the coherence and the ability of the government to manage their arduous tasks -- and that is why from June to October 2012 large inflows of funds penetrated the Greek stock market.
As far as the second rally is concerned, markets are anticipating the Greek budget surplus and are trading on rumors that Greece will be downgraded to the emerging market zone. However, and most important of all, is the fact the Greek Success Story is still in play. Greek efforts are great and improvements in some fields are significantly high.
What is of paramount importance in those two rallies is to underline their common correlation. Their correlation is the psychological perception of the market. In both cases, the market did rise up because something good did happen and did affected investors psychologically.
The question is how fundamentally correct this condition was. The answer is that, in both cases, the rallies did not depict real economic conditions. In both rallies, funds did speculate or bet on pieces of news that would change the market. This is shown by the aggressive corrections that took place after the rallies. 

If you look in depth, you will see Greece's internal situation has not yet improved. The nation's unwillingness to keep up with austerity payments will jeopardize whole operations and the government's hopes. Internal consumption and foreign investments are still very low.
The two rallies that took place make it quite clear that a third one will only happen when viable and sustainable growth takes place.