Analysis : Emerging market switch could boost Greek stocks

Wed Mar 20, 2013 2:32am EDT
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By Carolyn Cohn

LONDON (Reuters) - A switch from developed to emerging market stock indices could rekindle demand for Greek shares, although the crisis-hit euro zone state might sit uncomfortably among the fast-growing economies of Asia and Africa.

Russell Indexes, against whose products some $3.9 trillion of investors' money is benchmarked, cut Greece to 'emerging' from 'developed' status this month, while index compilers MSCI and FTSE are also reviewing the country for relegation.

Explaining the demotion, Russell cited falling incomes in Greece, rising sovereign, financial and currency risks, and a decline in the size and liquidity of its stock market.

That looks like bad news for Greece, which has taken two bailouts from its euro zone peers and restructured its debt to avert an ignominious "Grexit" from the single currency bloc.

But history suggests otherwise.

An upgrade by MSCI 12 years ago actually cost Greece investors because its 0.13 percent share of the developed market index .MIWO00000PUS was far lower than the 5 percent stake it had held in the emerging market equivalent .MSCIEF.

That suggests a reversal could bring in more investors.

"If MSCI downgraded Greece, I would be very happy to look at it," said Maarten-Jan Bakkum, emerging markets strategist at ING Investment Management, which has $2-3 billion under management in emerging equities.   Continued...

Traders work on the floor at the New York Stock Exchange, March 11, 2013. REUTERS/Brendan McDermid