Greek stocks plummet after five-week shutdown lifted

Greece's stock market suffered heavy losses on Monday, plunging nearly 23 percent at the open before recovering slightly, after a five-week shutdown brought on by fears the country was about to be dumped from the eurozone.

One fund manager described it as “herd behavior” and said few people were buying.

The main Athens stock index was down more than 18 percent in midday trading after an initial plunge that was larger than any one-day loss experienced on the bourse.

Banking shares, which make up about 20 percent of the Greece index, were hit particularly hard. National Bank of Greece, the country's largest commercial bank, was down 30 percent, the daily volatility limit. The overall Greek banking index, .FTATBNK, was also down to its 30 percent limit.

Greece's banks have seen deposits severely depleted as Greeks have withdrawn their euros for fear they would be forcibly converted into a new drachma currency outside the eurozone. The banks have been propped up by emergency money from the European Central Bank.

Trading on the Athens bourse was suspended in late June as part of capital controls imposed to stem a debilitating outflow of euros that threatened to cause Greece's banks to collapse and hurl the indebted country out of the eurozone.

Since then, Athens has agreed on a framework bailout plan with its European Union partners in exchange for stringent reforms and budget austerity.

But implementation of the deal is some way off, keeping alive the threat of political and economic instability. There is also concern that Prime Minister Alexis Tsipras, leader of the leftist Syriza party, may need to call a snap election.

Monday's losses reflect, in part, uncertainty about the bailout negotiations. They may bog down, for example, leaving the government and banks perilously short of cash.

A report on Sunday in the newspaper Avgi, which is close to Syriza, said the government was seeking 24 billion euros ($26.37 billion) in a first tranche of bailout aid from international lenders in August. Of this, the newspaper said, 10 billion euros was earmarked for an initial recapitalization of Greek banks, 7.16 billion euros to repay an emergency bridge loan and 3.2 billion euros to repay Greek bonds held by the European Central Bank (ECB) and others.

The European Commission, however, believes an agreement in August is unlikely and that a new bridge loan will be needed.

Greek shareholders are under severe restrictions. To limit the possibility of using shares as part of euro-flight, the government and ECB have said no extra money can be withdrawn by Greeks from deposit accounts to buy shares.

Greece's dismal economic prospects may also weigh on the market. The European Commission says the Greek economy will shrink by 2 to 4 percent this year, a return to the recession that has plagued the country since the 2008 global financial crisis.

On Monday, a survey showed Greek manufacturing activity plunged to a record low as new orders plummeted and the three-week bank shutdown caused serious supply problems.

Reuters