13 December 2018

Greece Downgraded to Emerging Market Status by MSCI

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Effective Nov. 30, Greece will be re-classified as an emerging market by MSCI Inc. This is the first time MSCI has dropped a country from its developed market index classification. This follows Russell Investments, which demoted Greece to emerging market status within its indexes in March, with an effective date of June 28th.

The MSCI Greece Index failed to qualify on several market accessibility criteria. The minimum standards that currently prevail in developed markets reflect continuous market improvements introduced by authorities in other countries over the years. However, very few of these improved market practices have been reflected in the Greek market. This has led to Greece now failing to meet on multiple criteria: securities borrowing and lending facilities, short selling and transferability.

The current environment for in‐kind transfer and off‐exchange transaction‐like facilities that were introduced in 2008 by the Greek authorities and the Athens Stock Exchange, are so restrictive that they have become essentially unusable. Additionally, the long standing absence of well‐established stock lending as well as short selling practices also make the Greek equity market incompatible with the standards of other developed equity markets. Further, the MSCI Greece Index has not met the Developed Market criterion for size for the last two years.

Greece accounts for only 0.01% of the MSCI World index and is the smallest developed market in terms of market value and number of stocks among the constituent countries. And it accounts for 0.02% of the MSCI Europe Australasia Far East index. The MSCI Greece index has only two stocks, Hellenic Telecommunications Organization SA, known as OTE, and Greek Organization of Football Prognostics SA, known as Opap, a company that manages lotteries and sports betting. Greece would account for 0.3% of the MSCI emerging markets index weighting. Once moved to emerging markets, more Greek companies might be included because there is a lower eligibility threshold.

For consideration to regain its developed market status, Greece would have to have at least five eligible companies of $2 billion in market value each, among other criteria. Greece had been re-classified to the developed markets category from emerging markets in 2001.

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