MSCI Inc. made headlines in June with the announcement that the index provider had placed Greece under review for a possible demotion to “emerging market” from its current “developed market” designation.
The move was widely seen by investors and the media as a response to the Mediterranean nation's possible exit from the eurozone — a fate some prognosticators have suggested is inescapable amid an imbroglio of budget deficits, bailout requirements from European officials and populist pressure against austerity measures in Greece.
But MSCI's primary issue with Greece predates the current flap, Chairman and CEO Henry A. Fernandez said in a recent interview.
“A big driver of putting them on review was not only — even maybe not largely — the issue of the euro,” Mr. Fernandez said. “The catalyst was that Greece never really fixed these (market functionality) problems, and (they) aren't likely to fix them now because of all of the problems they're having.”
For example, “the Greek equity market is the only developed market (as defined by MSCI) in which in-kind transfers and off-exchange transactions are prohibited and (where) stock lending (and) short-selling practices are not well established,” according to an MSCI news release in June.
There are just two companies in the MSCI Greece index, so a reclassification wouldn't have a major impact on most investors.
— DREW CARTER