by Mark Mobius

Greece stripped of 'developed' status

Expert opinion: Mark Mobius

Expert Opinion: Mark Mobius
Mark Mobius.jpeg

In June, major international equity index provider MSCI confirmed Greece’s sojourn among the ranks of “developed markets” would end later this year as it will become the first-ever country to lose its “developed market” status in the MSCI universe. 

Interestingly, Greece was classified as emerging when I started with the Templeton Emerging Markets Group in 1987, and while the recent news might conjure up images of a significant turn for the worse for the country’s economic fortunes, MSCI’s explanation for Greece’s reclassification was actually more mundane.

The division of MSCI’s equity universe into separate “developed,” “emerging” and “frontier” indexes was originally conceived in response to the arrival on the world scene of countries in various stages of economic development.

In order to be classified as a developed market, a country’s gross national income (GNI) per capita has to have been at least 25% higher than the World Bank’s threshold for a country to be in a “high income” (ie developed) category for three consecutive years. 

That would equate to R155 157, given the World Bank threshold stood at R124 057 as of 2011, the latest year for which data are available.

Despite several years of wrenching recession, Greek per capita GNI has been far in excess of this figure. 

Indeed, several emerging and frontier markets would meet this criterion.

Therefore, MSCI’s economic development requirements for index inclusion were not the issue for Greece, but other factors relating to the ability of international investors to easily enter and operate in the market proved important.

Despite Greece’s problems, we still see potential long-term opportunities there.

However, just because Greece will become part of the emerging market universe again does not necessarily mean we are rushing out to buy Greek stocks immediately.

A key aspect of our investment philosophy is that we are not constrained by considerations of index weighting, and although we will pay attention to a country’s macroeconomic fundamentals, our allocation decisions are based primarily on individual companies’ long-term value and potential prospects.

We see some faint signs that Greece’s challenging economic ordeal might be reaching a turning point, and we will look at the possibilities for investing.

The key, of course, is to find stocks that meet our value criteria.

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