Many traders and investors view the performance as stunning,
but there is no denying the fact the Global X FTSE Greece 20 ETF
(NYSE:
GREK
) has surged 72.4 percent in the past three months. GREK, the
lone ETF exclusively devoted to the controversial PIIGS nation,
debuted in December 2011 and now has nearly $30 million in assets
under management.
The good times for GREK have come even following
reports earlier this year Greece could lose its
developed market status
. In June, index provider MSCI (NYSE:
MSCI
) warned of the possibility.
With the decision of Coca-Cola Hellenic Bottling, GREK's
largest holding with a weight of over 15 percent, to leave Athens
in favor of a London listing, the chances of Greece being demoted
to emerging markets have risen,
Bloomberg reported, citing MSCI
.
The MSCI Greece Index consists of just two companies, with
Coca-Cola Hellenic garnering a weight of 75 percent, according to
Bloomberg. In other words, even though Greek equities have surged
over the past several months, a significant blow to that accrued
market value will be dealt with the departure of Coca-Cola
Hellenic, the world's second-largest bottler of the popular
soda.
"In addition, the Greek equity market is the only Developed
Market in which in‐kind transfers and off‐exchange transactions
are prohibited and stock lending as well as short selling
practices are not well established. This has created significant
concerns for market participants and in particular for passive
portfolio managers. The Greek authorities have not been receptive
to repeated complaints from the international investment
community and did not manage to bring equity market regulations
and practices in line with the evolving standards of Developed
Markets," MSCI said in June.
As it pertains to GREK, the ETF tracks the FTSE/ATHEX 20
Capped Index, and it is not yet clear if the FTSE Group will
follow MSCI's lead and consider a demotion for Greece. It is
worth noting that the two index providers do not classify all
markets the same way. For example, MSCI considers South Korea to
be a developing nation, but
FTSE does not
.
Another potential problem for Greece, and by virtue GREK, is
the size Greece would have in various emerging markets indexes
should it be demoted. Even at its peak in 2007, the total market
capitalization of the Greek equity market was just $273 billion.
The number is nowhere close to that today and even Greek equities
regained peak market values, the group would still trail major
members of the MSCI Emerging Markets Index such as Brazil, China
and South Korea by enormous margins. In other words, Greece would
be an inconsequential part of many emerging markets indexes.
Traders and investors that find GREK appealing can find some
comfort in knowing that just because MSCI says a country is on
review for reclassification does not mean said nation will
actually be reclassified. Just ask Qatar, South Korea and
Taiwan.
On the other hand, the index firm does not take possible
demotions lightly. That much is highlighted by the fact that
Greece is joined by Argentina on the list for potential negative
reclassification. South America's third-largest economy is in
such bad shape
MSCI could revoke its frontier market status
.
For more on market classifications, click
here
.
(c) 2012 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.