Greece’s stock market was put under review for reclassification to emerging markets by MSCI, a change that would make the European Union nation the first advanced country to be cut to developing status.
The MSCI Greece index, 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 Wednesday. The index provider said it might 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 ($127 billion) of debt. The MSCI Greece index has lost 93% over the past five years as the economy contracted and politicians struggled to keep it within the 17-nation eurozone. Companies on the gauge trade at an average eight times estimated earnings, a 34% discount to companies on the MSCI World index.
“The market has already made up its mind about Greek equities,” Michael Shaoul, chairman of Marketfield Asset Management, wrote in an e-mail Wednesday. “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% last month from 0.16% 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 index provider upgraded Greece to developed markets status in 2001. Downgrades could lead investors who follow MSCI’s gauges to shun the nation’s equities.