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And That Makes Three: Greece Gets Another Market Demotion


Supposedly, bad things come in threes. That is the case for Greece’s once tenuous grasp on developed market status because on Thursday, S&P Dow Jones Indices became the third major index provider this year to demote the “G” in the infamous PIIGS acronym to emerging from developed markets status.

Russell Investments was the first index provider to demote Greece to emerging market status. MSCI (MSCI) followed in June, saying at the time developed markets “reflect continuous market improvements introduced by authorities in other countries over the years,” but that few of the those improvements are reflected in Greece. Greece fails to meet MSCI criteria on securities lending, short selling, lending facilities and transferability. [Another Index Provider Demotes Greece]

S&P Dow Jones Indices also joined MSCI in promoting Qatar and the United Arab Emirates to emerging from frontier markets. Egypt and Morocco will remain emerging markets. Bahrain, Kuwait and Oman will remain frontier markets. Saudi Arabia will remain classified as a standalone market, according to a statement from S&P. [Changes Afoot for Frontier Markets ETF]

Emerging markets exchange traded funds using S&P indices include the $232.1 million SPDR S&P Emerging Markets ETF (GMM) . Like the Vanguard FTSE Emerging Markets ETF (VWO) excludes South Korean equities because S&P, like FTSE, classifies Asia’s fourth-largest economy as a developed market.

S&P reaffirmed South Korea as a developed market today, saying “South Korea meets all criteria to be a developed market, except for the lack of ease of currency trading. The general consensus among participants was that while this remains a challenge, moving the market to emerging status may cause greater disruption among passive and active investors.” However, the index provider classifies Taiwan, a so-called advanced emerging market, as a developing economy.

In downgrading Greece, S&P said the market “lags behind the advancements in market practices typical of other developed markets” while citing the “dramatic and consistent reduction” in Greek equity market capitalization in recent years along with restrictive securities borrowing and lack of ease in transferability.

The news does not seem to be bothering the Global X FTSE Greece 20 ETF (GREK) , which is up 1.2% today. GREK has surged 35.4% in the past three months, aided in part by news that hedge luminaries David Einhorn and John Paulson are bullish on Greek banks. Baupost, Eaglevale, Dromeus Capital, Falcon Edge, York Capital and Och-Ziff are among the other hedge funds that are reportedly making large bets on Greek banks. [After Hedgies Rush in, Mobius Warms to Greece]

In addition to GMM, other emerging markets ETFs that are benchmarked to S&P indices where Greece could possibly find a home include the SPDR S&P Emerging Markets Dividend ETF (EDIV) and the SPDR S&P Emerging Markets Small Cap ETF (EWX) .

Global X FTSE Greece 20 ETF