Lack of trust hurts markets

Many sectors of the Greek economy would benefit from an injection of confidence. Confidence in corporate governance and state supervision, that is.

It is no coincidence that one in four of the 172 listed companies on the Athens Stock Exchange are either under surveillance or under suspension.

We need a reboot, almost across the board. It is the natural consequence of the lost five years (2014-19) that has bequeathed so many problems, whether we realize it or – like some of us – insist on denying it.

Some problems have to do with the devaluation of institutions, such as justice and the market supervisory mechanisms, and the lack of initiatives, such as the modernization of the state. All the same, we have to start from the beginning.

The lack of confidence in companies that sidestep established practices in presenting their finances is just one part of the problem. Households also have limited trust in mutual funds and similar investment products. Investment in this product in Greece equals about 4.7% of gross domestic product (GDP). Compare that to Portugal (11.1%), Belgium (35%), Austria (48.7%) and the Netherlands (116.9%). The European Union average is 107.8%.

The government took a necessary step a month ago when it had Parliament vote a bill on corporate governance, the operation of company boards, as well as the adoption of EU regulations on investments.

A necessary step, yes, but because of the delay many more things have to be done to establish the needed trust in companies’ accounting and corporate governance practices, in the transparency of management’s connections and the transactions they approve.

The issue is more important than it looks, because reforming the operating mode of listed companies, especially, will help the devalued and degraded stock market to grow and attract capital in its search for reliable investment vehicles.

And it is not just the portfolio managers looking for trustworthy firms, but households, as well.