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Greece cut to emerging market at MSCI in world first

By Tom Stoukas

Greece became the first developed nation to be downgraded to emerging-market status by index provider MSCI Inc. (MSCI) after the country’s stocks plunged 91 percent since 2007.

The MSCI Greece Index will no longer be classified as a developed market as it failed to meet criteria regarding securities borrowing and lending facilities, short selling and transferability, New York-based MSCI, whose equity indexes are tracked by investors with about $7 trillion in assets, said in a statement. The gauge consists of two companies, Hellenic Telecommunications Organization SA, the country’s largest phone operator, and Opap SA, Greece’s biggest gambling firm.

Locked out of bond markets since April 2010, Greece was forced to accept two European Union-led bailout packages as public opposition to pension and wage cuts derailed the pace of promised economic reforms. The benchmark ASE Index (ASE), which has 60 members, sank 83 percent since October 2007.

MSCI put Greece under review for downgrade in June 2012, saying restrictions on in-kind transfers, off-exchange transactions, stock lending and short-selling stopped Greece from having a fully functional market. The probability of a demotion increased after Coca-Cola HBC AG, which previously made up almost a quarter of the Athens Stock Exchange by weight, switched its primary listing to London in April.

The index provider upgraded Greece to developed-market status in 2001. Downgrades could lead investors who follow MSCI’s gauges to sell the nations’ equities. The weight of Greek companies in the MSCI World Index has tumbled to 0.01 percent from 0.16 percent in May 2010, according to data compiled by Bloomberg.

MSCI’s reclassification of Greece follows Russell Investments, which advises funds with $2.4 trillion in assets. Russell said in March it will downgrade Greece to an emerging from a developed market after it failed economic and operational-risk assessments.

The benchmark ASE has fallen 9.2 percent this week as Greece failed to win any bids in a sale of the country’s gas monopoly. The unsuccessful attempt to sell Depa SA dented Greece’s state-asset sales program, which underpins 240 billion euros ($318 billion) of bailout loans from the euro area and International Monetary Fund.

The ASE has rallied 88 percent since June 5, 2012, as Greek Prime Minister Antonis Samaras’s New Democracy party formed a coalition government after finishing first in repeat elections and European Central Bank President Mario Draghi vowed to do whatever it takes to preserve the euro.

[Bloomberg]

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