MSCI downgraded Greece to emerging market in November 2013. Now, the country’s stock market is in great danger of losing even that status.
Athens’ standoff with the European Union (EU) and the International Monetary Fund (IMF) heads to a dangerous and uncharted new level following a July 5 referendum that was called by Prime Minister Alexis Tsipras on whether to accept austerity in exchange for a European bailout. As Greece appears to be headed for default, its government has ordered the closure of the stock market and banks until at least after July 5. Also capital controls have been put in place to prevent a run on banks.
In the meantime, “index provider MSCI said on Monday that the closure of the Athens stock market and the imposition of capital controls could lead to Greece’s relegation from the benchmark emerging equity index and its reclassification as a “standalone” market,” according to Reuters.
MSCI, which has $1.7 trillion benchmarked to its emerging market index .MSCIEF, said it was analyzing the situation.
“As per the MSCI Market Classification Framework, the introduction of prolonged restrictive measures, which result in a material deterioration in the accessibility of the Greek equity market, may lead to the reclassification of the MSCI Greece Index to Standalone Market status from Emerging Markets status,” MSCI said.
“Countries such as Jamaica, Botswana, Zimbabwe and mainland China are standalone in MSCI’s view. They don’t meet minimum liquidity requirements, their markets are partially or fully closed to foreign investors, and stock lending or short selling are either not developed or prohibited, according to MSCI,” Bloomberg reported.