The Global X FTSE Greece 20 ETF (NYSEArca: GREK) endured a dismal March, tumbling19.2% from March 4 through the end of the month. One of the reasons behind that slide was the decision by index provider Russell Investments to reclassify, or demote in this case, Greece as an emerging market from developed market status.
Investors currently holding shares of GREK, the lone Greece ETF, are hoping that performance does not repeat because after the close of U.S. markets Tuesday, index provider MSCI (NYSE: MSCI) announced it will reclassify its MSCI Greek Index as an emerging markets index. GREK did bounce back a bit after the Russell announcement in March, but the bottom line is Greece is now an emerging market in the eyes of two major index providers. [Greece ETF Bounces Back]
“MSCI will reclassify the MSCI Greece Index to Emerging Markets as part of the November 2013 Semi-Annual Index review,” said MSCI in a statement. “The MSCI Greece Index fails to qualify on several market accessibility criteria.”
MSCI noted that developed markets “reflect continuous market improvements introduced by authorities in other countries over the years,” but that few of the those improvements are reflected in Greece. Greece fails to meet MSCI criteria on securities lending, short selling, lending facilities and transferability. The index provider added that the MSCI Greece Index has not met its standards for developed market status for the past two years. [Greece ETF Falls on Protests]
Greece’s emerging markets demotion means it is possible that the country will become part of the MSCI Emerging Markets Index, the index tracked by the second-largest developing markets ETF, the iShares MSCI Emerging Markets Index Fund (NYSEArca: EEM).
While EEM is home to almost $38.4 billion in assets under management and the MSCI Emerging Markets Index has hundreds of billions in assets benchmarked to it, Greece would likely only account for a scant percentage of EEM’s weight. Indonesia is EEM’s tenth-largest country weight with an allocation of 3% and Greece would fall below that spot, fighting with the likes of Thailand, Turkey and Chile for a slice of EEM’s country weights.
Global X FTSE Greece 20 ETF
ETF Trends editorial team contributed to this article. Tom Lydon’s clients own shares of EEM.