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Will Greek stocks EVER recover?

Investors around the world watched Greece with interest on Tuesday to see if the country's stocks fared any better after a torrid comeback on Monday.

Market experts and economists are now questioning how long it will take for market confidence in Greece to recover—if ever.

On Tuesday, Greek stocks built on losses from Monday, when the Athens Stock Exchange reopened for the first time in five weeks.

The benchmark Athens Composite Index opened down 4.8 percent on Tuesday, before paring losses to close 1.2 percent lower. On Monday, the index plummeted 16.2 percent.

Athens Stock Exchange
Aris Messinis | AFP | Getty Images

Banking stocks were the worst hit, plummeting around 30 percent to their daily volatility limit on both days.

On Tuesday, Bank of Piraeus closed down 30 percent at the trading limit. Eurobank and Alpha Bank both ended a smidgen less than 30 percent lower.

Evangelos Charatsis, managing director of Beta Securities, told CNBC that it was a "bad day for the Greek market" and that, given the raft of problems in Greece, it "would take a while—maybe from the middle to the end of the week—for the market to find a new equilibrium."

"I believe the sell-off won't go much further. The banking sector was mostly hit from this decline and I believe today we might see the banks finding a new equilibrium," he told CNBC Europe's "Squawk Box" Tuesday.

Charatsis noted that the Greek market was re-pricing in the worsening Greek economy, with most analysts now expecting a recession of around 3 to 5 percent this year. "And maybe 2016 will be a recessionary year as well," he said.

"The banking sector is in a very bad shape, we don't know how much money is going to be needed to recapitalize the banks, there has been a provision for 25 billion euros ($27 billion) but it might be less than that, and confidence in the market is at record lows."

Greece hopes for deal in 2 weeks

Sounding a more positive note, Charatsis said he believed that Greece was on course for an agreement over a third, 86 billion euro bailout package with its creditors, the finer details of which are being discussed in Athens this week.

Reuters reported on Tuesday that Greece hoped to strike a deal within two weeks, citing an interview given by a Greek governmental spokesperson with Greek TV.

The drafting of an accord is set to start on Wednesday, according to Reuters.

One of the main topics for the third bailout discussions is the country's pensions system. Greece and lenders agreed on Monday that pension reforms will affect only those who retired after the end of June, labor ministry officials told Reuters on Monday.

Despite the progress, which follow Greek Prime Minister Alexis Tsipras' capitulation to lenders demands for reforms in return for a rescue from bankruptcy earlier in July, economists believe that Greece's problems could run so deep and could still face an exit from the euro zone.

Read MoreGreece's Tsipras on shaky ground, warns of elections

A 'fantastical bailout'?

Jonathan Loynes, chief European economist at Capital Economics, said in a note Monday that "massive economic damage means a Grexit is still likely."

"The scale of the damage done to the Greek economy by the country's renewed crisis and imposition of capital controls looks set to be far worse than the provisional plans for a third bailout envisaged and suggests that Greece is still likely to leave the currency union at some point," Loynes noted.

Loynes said that the scale of the damage to the Greek economy from the crisis and capital controls, imposed at the end of June to prevent a bank run and meltdown of Greece's already-struggling banking sector, were far worse than initially predicted.

Back to normal in September?

The ban on short-selling stocks will continue until August 31, Greece's Kathimerini newspaper reported on Tuesday, citing the chairman of the Hellenic Capital Markets Commission, Konstantinos Botopoulos.

Botopoulos said that the objective was for normal market conditions to resume by September, according to Kathimerini.

Read MoreCan the Greek bailout survive without the IMF?

Capital Economics "now penciled in quarterly contractions in Greek GDP in Q2, Q3 & Q4 of this year of 2 percent, 4 percent and 2 percent respectively. This would give average annual growth of (minus) 4.0 percent, worse than our previous forecast…Next year's average growth figure could be even weaker at (minus) 5 percent."

Against that economic backdrop, Loynes warned, "the requirement in the current bailout plan for Greece to build up sizable primary budget surpluses over the next few years looks extremely demanding, if not utterly fantastical."

—By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt. With contribution from Katy Barnato.