By Daniel Bases
NEW YORK, June 11 Equity index provider MSCI on
Tuesday lowered European Union member Greece to emerging market
from developed market status, citing failure to qualify on
several criteria for market accessibility.
In a long-awaited move, MSCI did raise Qatar and the United
Arab Emirates to emerging market status from frontier market
Morocco's classification was lowered to frontier market from
emerging market status. The firm said Morocco has failed to meet
liquidity requirements for several years and a downtrend has
shown no sign of reversal.
Qatar and UAE reclassifications will coincide with the May
2014 semiannual index review while the lowering of both Greece
and Morocco will coincide with the November 2013 semiannual
index review, MSCI said.
In addition to the country reviews, MSCI said it would start
examining China A-shares for potential inclusion in the MSCI
Emerging Markets Index.
The firm was quick to point out that initiating a discussion
does not indicate any China A-shares have already met the
standards of accessibility for inclusion in the benchmark index.
However the significant size of this market and possible
further regulatory reforms in the short term mean MSCI believes
"it is important to actively engage with the international
investment community on this matter."
South Korea and Taiwan remain on review for reclassification
to developed market status from their current emerging market
Both country indices remain with shortcomings for market
accessibility, MSCI said.
MSCI said the equity market in Greece is not reflecting the
improved practices currently found in developed markets for such
things as securities borrowing and lending facilities, short
selling and transferability. It also has not met the developed
market criteria for size for the past two years.
Greece, which has been at the epicenter of Europe's
financial crisis, is in its sixth year of recession and
unemployment is nearly 27 percent.
"Market participants have commented that in-kind transfer
and off-exchange transaction-like facilities that were
introduced in 2008 by the Greek authorities and the Athens Stock
Exchange, are so restrictive that they are, in practice,
unusable," MSCI said.
MSCI said it is monitoring Egypt's markets, with particular
concern over the recent shortage of foreign currency on the
domestic foreign exchange market.
"MSCI may be forced to launch a public consultation with
the investment community on a potential exclusion of the MSCI
Egypt Index from the MSCI Emerging Markets Index were the
situation on the Egyptian foreign exchange market to worsen and
result in the inability of international investors to repatriate
their funds," MSCI said.
Israel's market, which was moved to developed market status
from emerging in May 2010, is not finding support among
international institutional investors for inclusion in the MSCI
Europe Index. Given some investors have started to include
Israeli companies in their European portfolios, MSCI said it
would continue to include Israel in its MSCI Europe + Middle