Greece became the first developed nation to be downgraded to emerging-market status by MSCI Inc after its stock index plunged 83 percent from 2007 levels.
Greece failed to meet the criteria regarding securities borrowing and lending facilities, short-selling and transferability, said MSCI, whose equity indices are tracked by investors with about US$7 trillion in assets.
Locked out of bond markets since April 2010, Greece accepted two EU-led bailout packages as public opposition to pension and wage cuts derailed the pace of promised economic reforms. The benchmark Athens Stock Exchange General Index has been the world’s second-worst performer since October 2007.
“We’re already seeing money heading back to safe havens and the MSCI decision may exacerbate that,” Peter Sorrentino, who helps manage about US$14.7 billion at Huntington Asset Advisors in Cincinnati, Ohio, said in a telephone interview. “Greece’s downgrade brings them back to the forefront and it’s a sign that the crisis in Europe is far from over.”
MSCI put Greece under review for a downgrade in June last year, saying restrictions on in-kind transfers, off-exchange transactions, stock lending and short-selling stopped the country from having a fully functional market. The probability of a demotion increased after Coca-Cola HBC AG, which previously made up almost a quarter of the Athens Stock Exchange by weight, switched its primary listing to London in April.
MSCI’s reclassification of Greece follows Russell Investments. Russell said in March it would downgrade Greece after it failed economic and operational-risk assessments.
Qatar and the United Arab Emirates were raised by MSCI to emerging markets, while Morocco was cut to a frontier market.
New York-based MSCI will also keep Taiwan and South Korea as emerging markets, while it placed Chinese shares traded on local exchanges on review for inclusion in the emerging category.
Taiwan’s market falls short of developed-nation classification because of market accessibility issues, including the lack of an offshore market for the currency, MSCI said.