|Greece's Developed Market Status At Risk, Says MSCI|
|May 31, 2012 12:03 (CET)|
Greece would be excluded from MSCI’s European Monetary Union (EMU) indices if it left the eurozone, but it would not necessarily lose its developed market classification, the index provider said today.
In a document entitled “Treatment of Greece in the MSCI Indices in case of exit from the European Monetary Union”, MSCI considered the potential impact of the Mediterranean nation’s exit from the single currency, putting forward two hypothetical scenarios: an orderly and well-planned exit; and a disorderly exit.
Under the first scenario, MSCI put Greece’s move to a new currency on par with the introduction of Turkey’s New Lira in 2005. It said that provided information about the new currency was communicated by Greek authorities and the stock exchange in a timely and orderly fashion, there would be no automatic review of the market classification of Greece as a developed market.
However, in the other scenario, in which communication was inadequate and if the introduction of the new currency led to “sudden and extreme deterioration of the accessibility of [the] Greek equity market due to the introduction of restrictive measures, such as capital or foreign exchange controls or due to prolonged stock exchange closure”, MSCI said it could potentially reclassify Greece as a standalone market.
MSCI classifies countries as either developed markets, emerging markets, frontier markets or standalone markets, with reviews conducted on an annual basis. However, it will review a country’s ranking outside the annual review in some circumstances, such as those it described in the scenario of a disorderly exit by Greece from the eurozone.
If, after market consultation, it determined that Greece no longer fits the criteria of a developed market, it would reclassify it as a standalone market until it could undertake a full assessment and determine which of the other categories it should now fall into.
If this happened, Greece would be removed from the MSCI Europe indices, which are made up of developed markets in Europe. The MSCI Greece Indices would be maintained only for corporate events and would not be rebalanced.
The impact on Europe indices would be fairly marginal, however, because as at April, the MSCI Greece Index had a weight of just 0.09 percent in the MSCI Europe Index.