MSCI: Greece Now Emerging, SKorea Still Is
Greece’s fall from grace, caused by a huge debt crisis that continues to run its course, was rubber-stamped Tuesday by the global indexing firm MSCI, which reclassified the southern European country as an emerging market, stripping it of its developed-markets status in the first time MSCI has ever mandated such a reversal.
Qatar and the United Arab Emirates, two rising stars of the Middle East, were meanwhile promoted by MSCI to emerging-markets status from frontier—a happier turn of events, even as all three countries will join the MSCI Emerging Markets Index, around which the $38 billion iShares MSCI Emerging Markets Index Fund (EEM) is organized.
MSCI meanwhile kept investors waiting—as it has for the past two years—regarding the promotion of South Korea and Taiwan, two stalwarts of Asia that have been under review for a few years regarding possible ascendancy to developed-market status. MSCI said little has changed on issues such as currency convertibility, particular in South Korea.
Greece’s demotion, linked in large measure to deficient market-accessibility criteria, again marks the first time MSCI has stripped a country of its developing markets status. Greece first gained that developed-markets status in 2001, an MSCI official said in a conference call following the release of the results. MSCI signaled a year ago Greece’s developed markets status was in question.
On the flip side, MSCI said it is also beginning the review of the Chinese A-shares market that canvasses mainland China companies listed in Shanghai and Shenzhen for possible inclusion in the MSCI Emerging Markets Index.
That would boost China’s percentage of the index to about 32 percent, compared with the 18 percent that the H-shares market in Hong Kong comprises. MSCI cited positive regulatory momentum in the past 12 months. China is the largest country in the MSCI Emerging Markets Index.
Other Changes
Other changes in MSCI’s 2013 country classification review included the demotion of Morocco to frontier-market status from its current classification as an emerging market.
The demotions of both Greece and Morocco—liquidity in the North Africa market has been declining for years—will take place at the end of November 2013, while the promotions of both Qatar and the UAE will take place at the end of May 2014.
MSCI said investors are increasingly confident in the two Middle East nations that their investible assets are well safeguarded.
Just two developed-market companies remain in the Greece MSCI Index, but that number should climb once the demotion takes effect next year.
MSCI also said it is closely monitoring the “situation” in Egypt, and that the Middle East country’s status as an emerging-markets country hangs in the balance should “negative developments” worsen in the foreign exchange markets. The country’s dictator of almost 30 years was overthrown in the spring of 2011, and the successor government has yet to completely stabilize the country.
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