), a firm with indexes tracked by dozens of developed and
emerging market ETFs, said that its MSCI Greece Index has been
added to the review list for potential reclassification to
emerging markets status.
In the report, MSCI stated, "[t]he MSCI Greece Index is
structurally no longer in line with Developed Markets size
requirements with only two index constituents. If these two
remaining index constituents were to experience further decrease
in size, MSCI may be forced to discontinue the calculation of the
MSCI Greece Index."
As Greece's economic picture notably darkens and its equity
market plunges, the country has become a smaller part of MSCI
World Index. In May 2010, the MSCI Greece Index accounted for
0.16 percent of the MSCI World Index. That percentage was just
0.03 percent in May 2012.
"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 the statement.
The Global X FTSE Greece 20 ETF (NYSE:
), the lone Greece-specific ETF on the market today, does not
track the MSCI Greece Index. GREK follows the FTSE/ATHEX 20
Capped Index - but regardless of the index the ETF tracks, it
could be vulnerable to declines should Greece be demoted to
emerging markets status.
In other reclassification news, South Korea and Taiwan have
retained their emerging markets status with MSCI. Other index
providers such as FTSE and Standard & Poor's have classified
South Korea as a developed market for several years, but MSCI has
yet to make the move. Taiwan has also been on the block for
promotion to developed markets status for several years only to
be continually viewed as a developing nation by MSCI.
MSCI acknowledges that its South Korea and Taiwan indexes
continue to meet most of the criteria for developed markets
status. Those indexes are tracked by the iShares MSCI South Korea
Index Fund (NYSE:
) and the iShares MSCI Taiwan Index Fund (NYSE:
MSCI once again denied Qatar's and United Arab Emirates'
('UAE') promotions to emerging markets status. The two Middle
East nations will retain the frontier markets designation until
the next annual reclassification review. Both countries have
failed three times to make the leap to emerging status from the
higher risk frontier markets label. The last failure
came in December 2011
ETFs with large weights to Qatar and UAE include the
PowerShares MENA Frontier Countries Portfolio (NASDAQ:
), the Market Vectors Gulf States ETF (NYSE:
), and the WisdomTree Middle East Dividend ETF (NASDAQ:
Morocco has been put on review for possible reclassification
to frontier status from emerging markets status, according to the
Another country that could be in trouble with MSCI is
Argentina. South America's second-largest economy is already a
frontier market, so it is not on review for a downgrade. Rather,
Argentina could be removed from the MSCI Frontier Markets Index
if the government there remains hostile to free market
"MSCI continues to monitor closely the situation in Argentina
following the nationalization of YPF through the "expropriation"
of a 51% stake from the Spanish company Repsol by the Argentinean
government. Any further such government intervention in the
"free‐market" economic system may force MSCI to launch a public
consultation with the investment community on a potential
exclusion of the MSCI Argentina Index from the MSCI Frontier
Markets Index," MSCI said in the statement.
The Global X FTSE Argentina 20 ETF (NYSE:
) has tumbled over 20 percent since mid-April when the
Argentinian government announced plans for the nationalization of
YPF S.A. (NYSE:
). ARGT does not track an MSCI index. Rather, it is linked to the
FTSE Argentina 20 Index, but Argentina's departure from the MSCI
Frontier Markets Index could result in further pressure on the
ETF and Argentine equities. MSCI stripped Argentina of its
emerging markets status in 2009.
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