Greece’s stock market was put under review for reclassification to emerging markets by MSCI Inc. (MSCI), a change that would make the European Union nation the first advanced country to be cut to developing status.
The MSCI Greece Index (MXGR), which includes only two companies, is “structurally no longer in line with Developed Markets size requirements,” MSCI, whose stock indexes are tracked by investors with about $7 trillion in assets, said in a statement yesterday. The index provider said it may discontinue the calculation of the MSCI Greece Index should the stock valuations keep declining.
Greece completed the largest bond restructuring in history in March after holders forgave more than 100 billion euros ($127 billion) of debt. The MSCI Greece Index has lost 93 percent over the past five years as the economy contracted and politicians struggled to keep it within the 17-nation euro-region. Companies on the gauge trade at an average 8 times estimated earnings, a 34 percent discount to companies on the MSCI World Index. (MXWO)
“The market has already made up its mind about Greek equities,” Michael Shaoul, the New York-based chairman of Marketfield Asset Management, wrote in an e-mail yesterday. “MSCI is simply bowing to the inevitable. In a sense they really need a new category, blown-up developed markets.”
The weight of the MSCI Greece Index in the MSCI World Index slid to 0.03 percent last month from 0.16 percent in May 2010. MSCI said it would consider shifting Greece to Standalone Market status should the country exit the euro and restrict investors to its equity market.
The MSCI Greece Index fell 0.5 percent to 10.28 by 11:43 a.m. in Athens today, heading for its first decline in four days
MSCI, a New York-based index provider, tracks economic development, trading volumes and market accessibility to assess market classifications.
The index provider upgraded Greece to developed-market status in 2001. Downgrades could lead investors who follow MSCI’s gauges to shun the nations’ equities.
A downgrade would be the first time that MSCI cuts a developed market to the emerging-market category, according to the company’s website.
Greece, mired in a fifth year of recession, has been ordered by Europe’s governments to enact promised spending cuts in return for 240 billion euros in rescue packages since 2010. While its 2009 budget deficit topped 15 percent, the European Commission estimates it still faces a cumulative fiscal gap in 2013-2014 of 5.5 percent of GDP and has failed to meet targets for tax collection, state asset-sales and public procurement.
The New Democracy party is hammering out a three-way government committed to staying in the euro after winning June 17 elections.
Among the two companies in the MSCI’s Greece index, Coca- Cola Hellenic Bottling Company SA (EEEK) lost 29 percent in the last four years, while OPAP SA (OPAP), a sports betting and lottery company, declined 79 percent.
The MSCI Emerging Markets Index lost 15 percent during the same period.
“Greece didn’t have the characteristics of other emerging markets like Brazil, Russia, India, China,” said Michael Gayed, chief investment strategist in New York at Pension Partners LLC, which advises on over $150 million in assets.
MSCI also said its Morocco index has been added to the review list for potential reclassification to frontier market. It kept South Korea and Taiwan with emerging-market status and the United Arab Emirates and Qatar as frontier markets.
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