Russell Investments, a known fund advisor has decided to reclassify Greece as an emerging market from a developed market. This is kind of an unprecedented step after the recession that hit this European country big time, reducing its economy by around 20%. The advisor had raised Greece’s status to developed market 12 years ago. Greece has actually failed one or both of the economic and operational risk assessments of Russell Index on every year since 2011. As a result of this decision, the managers will now be compelled to buy and sell shares in an attempt to align holdings with that of the criteria of the fund.
The Senior Research Analyst of Russell, Mat Lystra, stated that since Greece started to reveal the unsustainable levels of public debt in 2009, the economic tailspin has been unfortunate and at certain times, the same has threatened to pull apart the whole European Monetary Union. Mat added further that in the last few years, any opportunity in the Greek economy has been inherently riskier exposures for investors from all over the world. Incidentally, Greece is the first ever country in the history of Russell Investments’ to be cut to emerging market status from that of developed market.
While announcing the decision, Russell officials stated that such reclassifications are pretty rare and need 3 years of sustained changes in the economic criteria of a specific country. The benchmark gauge of Greece, the ASE Index of equities has doubled since last June, when it reached a 3-decade low. Incidentally, the gauge is still 81% below the level where it was in October, 2007. While taking the decision of reclassifying Greece, Russell Investments took several parameters into consideration such as: total market capitalization, per-capita income, individual company size, trading volume level and many more.
Incidentally, the 2nd largest Coca-Cola bottler, Coca Cola Hellenic has already started procedure of moving out to the London stock exchange. This decision has been taken to increase the overall trading volume. MSCI Inc., a known index advisor has also put Greece under review for possible downgrade since last June and it commented that the migration of Coca Cola HBC has lessened the chances of Greece staying a developed market. Current combined value of Greek stocks is around $48 billion, but may go down below $41 billion, if Coca Cola Hellenic moves out.