Greece Cut to “Emerging Market” by MSCI

First, the situation in Greece will not improve because it does not have the means internally to correct the factors that have damaged its economy and increased its deficits to unprecedented levels. Consumer spending within Greece has been undermined by an unemployment rate of above 25% and a government that can no longer offer aid to the jobless.

Greece does not have the modern manufacturing and service sectors to build an export base. The government has no means to set tax incentives to provide aid to growing businesses. And the bank system has nearly collapsed, which makes access to capital nearly impossible.

Finally, the habit among Greeks to use the underground economy and dodge taxes has been well established for years.

The agency reported in its market classification review:

MSCI will reclassify the MSCI Greece Index to Emerging Markets as part of the November 2013 Semi‐Annual Index Review. The MSCI Greece Index fails to qualify on several market accessibility criteria. The minimum standards that currently prevail in Developed Markets reflect continuous market improvements introduced by authorities in other countries 0ver the years. However, very few of these improved market practices have been reflected in The Greek market. This has led to Greece now failing to meet on multiple criteria: securities borrowing and lending facilities, short selling and transferability.

Market participants have commented that in‐kind transfer and off‐exchange transaction‐like facilities that were introduced in 2008 by the Greek authorities and the Athens Stock Exchange, are so restrictive that they are, in practice, unusable. In addition, the long standing absence of well‐established stock lending as well as short selling practices also make the Greek equity market incompatible with the standards of other developed equity markets.

Further, the MSCI Greece Index has not met the Developed Market criterion for size for the last two years. If it were not for an exception to the index maintenance methodology that requires the index to have at least two constituents, only one security would currently qualify for inclusion in the MSCI Greece Index.