Greece may be in flames, but its stock market is doing quite nicely.
In fact, the gains so far this year have outpaced those in many financially stronger countries—especially China.
While Greece’s battle to combat its deficit, secure aid and implement austerity measures has roiled global markets since the start of the European debt crisis, its benchmark stock market index is set to end 2012 sharply in the black.
As of Wednesday, the Athens Composite Index had rallied 11.65 percent since the start of 2012, comparing favorably with “core” European countries’ indexes, such as France’s CAC 40 which is up 11.20 percent.
Athens’s strong performance puts it a shade behind the S&P 500 , but ahead of the Dow Jones Industrial Average .
However, Athens’s rally becomes more striking when contrast with China’s benchmark index, the Shanghai Composite , which has dropped 7.61 percent since the start of this year. Is this a rare example of stock indexes misrepresenting economic fundamentals?
Analysts say not. “There are quite a few examples where there’s a big divergence between a country’s GDP growth and its equity performance,” Adrian Foster, the head of financial market research at Rabobank, said.
“Just look at China in 2007-08: when growth was at 10-plus percent, the Shanghai Composite fell from over 6,000 points to around 2,000.”
A current example of a country’s stock index underperforming its economy is Indonesia, said Foster. Despite the Asia-Pacific slowdown, Indonesia is thriving and grew at an impressive 6.4 percent in the second quarter. Meanwhile, its benchmark index, the Jakarta Composite, has rallied a respectable but unexceptional 10 percent year-to-date. (Read More: Indonesia Mints Millionaires Fastest in Asia.)
In addition, the Athens Composite’s strong performance reflects the record low it reached in June 2011, falling below 500 points, before Greece’s second bailout was agreed. Subsequently, the index has remained largely in the black.
On Wednesday, the Athens Composite closed 0.38 percent higher, despite the resurrection of violent anti-austerity protests in the Greek capital. All other major European indexes closed lower.
The Shanghai Composite ended 1.2 percent lower on Wednesday at 2004.2 points.
— By CNBC.com's Katy Barnato