MSCI Inc demoted Greece to an emerging market from a developed market, effective Nov. 30, the first time the company has dropped a country from its developed markets indexes, said Remy Briand, MSCI managing director and global head of index research.
Also, MSCI postponed a decision on potential reclassification of South Korea and Taiwan to developed markets from emerging markets until May 31, 2014, Mr. Briand said in a conference call. South Korea accounts for 14.9% of the MSCI emerging markets index weighting, while Taiwan accounts for 11.3%. If they were included in the MSCI World index, which consists of developed markets, South Korea would account for a hypothetical 1.9% of the weighting and Taiwan, 1.4%.
MSCI has begun evaluation for potential inclusion of China A shares, which trade domestically, to the MSCI emerging markets index. No decision will be made until June 2014, said Mr. Briand, who is based in Geneva. China H shares, which trade in Hong Kong, already constitute part of the MSCI emerging markets index, accounting for 18% of its weighting, the largest share of any country. A shares, if elevated, would account for another 14% of weighting, giving China a combined 32% of the MSCI emerging markets weighting.
MSCI has concern about restrictions on international investors in A shares, Mr. Briand said. “However, there has been regulatory momentum regarding accessibility to this market for international investors and that has triggered this (MSCI) review,” he said.
MSCI also raised Qatar and United Arab Emirates to emerging markets from frontier markets, effective May 31, 2014. They would account for 0.45% and 0.4%, respectively, of the weighting of the emerging markets.
MSCI downgraded Morocco to frontier markets from emerging markets, effective Nov. 30. That country accounts for 0.08% of the emerging markets index weighting.
In addition, MSCI has begun monitoring Egypt, an emerging market, accounting for 0.26% of the weighting, because of concern about its ability to repatriate funds out of the country.
MSCI declined to move Israel, already a developed market, to MSCI Europe, keeping it in an MSCI Europe and Middle East index after investor objections over the lack of a geographical connection.
Greece accounts for 0.01% of the MSCI World index and is the smallest developed market in terms of market value and number of stocks among the constituent countries. Greece accounts for 0.02% of the MSCI Europe Australasia Far East index. The MSCI Greece index has only two stocks, Hellenic Telecommunications Organization SA, known as OTE, and Greek Organization of Football Prognostics SA, known as Opap, a company that manages lotteries and sports betting. Greece would account for 0.3% of the MSCI emerging markets index weighting. Once moved to emerging markets, more Greek companies might be included because there is a lower eligibility threshold.
MSCI downgraded Greece over concerns about investor accessibility, liquidity and the shrinking size of the market. It had elevated Greece to developed markets from emerging markets in 2001.
For consideration to regain its developed market status, Greece would have to have at least five eligible companies of $2 billion in market value each, among other criteria.
Mr. Briand said the delays in effective dates are designed to give investors time to prepare for the changes, covering new markets and any registration requirements.
In March, Russell Investments announced it demoted Greece to an emerging market from a developed market within its indexes, effective June 28.