In June, major international equity index provider MSCI confirmed Greece’s sojourn among the ranks of “developed markets” would end later this year as it will become the first-ever country to lose its “developed market” status in the MSCI universe.1 Interestingly, Greece was classified as emerging when I started with the Templeton Emerging Markets Group in 1987, and while the recent news might conjure up images of a significant turn for the worse for the country’s economic fortunes, MSCI’s explanation for Greece’s reclassification was actually more mundane.
The division of MSCI’s equity universe into separate “developed,” “emerging” and “frontier” indexes was originally conceived in response to the arrival on the world scene of countries in various stages of economic development. In order to be classified as a developed market, a country’s gross national income (GNI) per capita has to have been at least 25% higher than the World Bank’s threshold for a country to be in a “high income” (i.e. developed) category for three consecutive years.2 That would equate to US$15,600, given the World Bank threshold stood at US$12,475 as of 2011, the latest year for which data are available. Despite several years of wrenching recession, Greek per capita GNI has been far in excess of this figure.3 Indeed, several emerging and frontier markets would meet this criterion. Therefore, MSCI’s economic development requirements for index inclusion were not the issue for Greece, but other factors relating to the ability of international investors to easily enter and operate in the market proved important.
Read more: http://mobius.blog.franklintempleton.com/2013/07/10/greece-the-submerging-market-and-others-surfacing/?utm_source=rss&utm_medium=rss&utm_campaign=greece-the-submerging-market-and-others-surfacing#ixzz2YhIoMqmX