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Kyle Bass predicts investors are getting ready to pour billions back into Greek economy

  • Kyle Bass predicts Kyriakos Mitsotakis will win a snap election in Greece next year and become prime minister.
  • The center-right leader is pro-foreign investor and vows to reduce taxes and speed up marquee privatizations.
  • After the election, Bass believes 15 billion in euros will return to the Greek banking system and the stock market will rise.

Hayman Capital Management founder Kyle Bass says foreign investors are waiting on the sidelines for a tectonic political shift to take place in 2018.Mark Neuling | CNBC

Superstar hedge fund manager Kyle Bass thinks Greece is turning a corner on its decade-long debt crisis that mired the country in a depression and whacked 28 percent from GDP. The founder and chief investment officer of Hayman Capital Management, which manages an estimated $815 million in assets under management, has a good pulse reading on the Greek economy and political climate. For years he's been invested in Greek bank stocks that are trading at a quarter of book value.

According to Bass, foreign investors are waiting on the sidelines for a tectonic political shift to take place in 2018. The country is now preparing to end its international bailout program next year, with more than €320 billion (US$372 billion) in national debt. On Monday, Greece announced it will distribute 1.4 billion euros ($1.63 billion) as a social dividend to pensioners and others hit hard by the country's austerity program.

"My best guess is a snap election for prime minister will be called between April and September of next year and Prime Minister Alexis Tsipras will lose power. When that happens, there will be a massive move into the Greek stock market. Big money will flow in as investors feel more confident with a more moderate administration.

"It's going to take Kyriakos Mitsotakis, president of New Democracy, the Greek conservative party, to be voted in as prime minister to reform the culture and rekindle investor confidence," said Bass. "I have no doubt €15 billion in bank deposits will come back to Greek banks if he's elected. The stock and bond markets will also jump following the election."

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The son of Constantine Mitsotakis, the former Greek prime minister and a Stanford graduate, is the head of the strongest Greek opposition party. Over the last year, he has forged ties with the European People's Party, which consists of center-right and Christian democratic European parties. Although Mitsotakis supports cuts in government spending, he is against higher taxes, since they are hurting the flow of foreign investment.

It's going to take Kyriakos Mitsotakis, president of New Democracy, the Greek conservative party, to be voted in as prime minister to reform the culture and rekindle investor confidence.Kyle Bassfounder and chief investment officer, Hayman Capital Management

Mitsotakis' vision is a downsizing of the public sector and bold tax reforms that include a tax reduction for businesses from 29 percent to 20 percent, slashing the extraordinary property tax by 30 percent in two years and a 5 percent cut in the dividend tax. He also vows to speed up the privatization process while pushing forward major projects, including investment in the former Athens airport.

"From my perspective, we have to fix two things in Greece for the market to take off," Bass said. "First, Greeks have to stop evading taxes. Second, they have to start repaying their loans."

A turnaround in the offing

As Bass explains, economic activity will get reenergized with the right leadership. The sectors global investors are eyeing right now are real estate, energy and tourism. "There is so much potential," he said. "Pimco, Lonestar, KKR are all looking to buy commercial properties in Greece."

He also noted that the country will have marquee privatizations over the next two years.

Big funds, including BlackRock, Fidelity Investments and Vanguard, have already established footholds with stakes in stocks such as National Bank of Greece and gambling firm OPAP, but Athens remains a frontier market. There are signs other money managers are starting to count on a deal to make Greek debt sustainable. That could also bring back more savings that fled abroad before Athens imposed capital controls at the height of the 2015 crisis.

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