For the first time, index provider MSCI Inc. will be upgrading a country’s index from emerging market status to developed market status — reclassifying Greece as a developed market, reflecting the country’s economic and fiscal recovery since its sovereign debt crisis.
Earlier this year, following a public consultation, MSCI approved the return of its Greece indexes to developed market classification, and for those benchmarks to be incorporated back into its index series for developed Europe.
That process will take place in May 2027 in one fell swoop, across all the affected indexes.
The move will reverse a downgrade that took place back in 2013, amid a sovereign debt crisis in Greece, which MSCI said left the country’s equity market falling short of developed market standards in several areas, including securities borrowing and lending, short selling and transferability. This decline in market operating conditions resulted in it failing the firm’s accessibility standards test, MSCI said.
Since then, alongside Greece’s economic and fiscal recovery, there have been significant improvements in the country’s clearing and settlement systems, and the capacity for securities lending and short selling activity have been enhanced too.
Indeed, in its consultation on the country’s proposed return to developed market status, MSCI noted that “the supply for stock lending and conditions for short selling have significantly improved for international institutional investors, in line with European markets standards as confirmed by market participants.”
When the country was downgraded, that move was unprecedented, and Greece’s planned return to developed market status is just as novel, following a “fundamental rebuilding of the Greek economy.”
MSCI noted that the Greek economy has outperformed the European average in GDP growth since 2021, the government debt-to-GDP ratio has declined sharply, and is projected to continue declining into 2030, and its sovereign credit rating returned to investment grade status in 2023.
This economic turnaround has been reflected in the stock market too, which has seen the market cap of the companies in the MSCI Greece Standard Index jump to US$50.6 billion from just US$5.5 billion in 2013. The index has outperformed the MSCI Emerging Markets and MSCI Europe indexes over the one-, three-, five- and 10-year periods (to March 31), it said.
“Greece’s path from emerging market back to developed market status reflects both the progress achieved by the Greek market authorities and the evolving view among global institutional investors that developed markets Europe operates as a cohesive investment region,” said Raman Aylur Subramanian, head of market classification and taxonomies at MSCI, in a release.
“Market participants recognized that Greece’s market infrastructure has converged with developed European standards and meets the criteria for developed markets,” he added. “This reclassification decision follows sustained market reforms and dialogue between market authorities, the investment community and MSCI.”
For investors, the reclassification will impact both emerging market and developed market exposures.
Overall, MSCI projected that Greece will have a weighting of 40 basis points within the MSCI Europe index — on par with countries such as Austria and Portugal — with a hefty allocation in a handful of banks, which currently account for a combined 80% of the simulated index.
Conversely, it also noted that the removal of the Greek banks from the emerging market indexes (Greece currently has a 57 bps weight in the MSCI Emerging Markets Index) will reduce investors’ exposure to financials in that segment.