In which the Greek crisis meets the perils of indexing.
The FTSE did its annual shuffling of world stock indices on Thursday.
This process firstly involved promoting the Czech Republic, Malaysia and Turkey to ‘advanced’ from ‘secondary’ emerging markets, in terms of how welcoming their stock exchanges are to foreign investors.
But it also renewed its ‘watch list’ of countries who might see their statuses downgraded or upgraded next year. See if you can spot the odd one out from the emerging-market pack:
The following markets have been confirmed as Watch List countries at this Review:
• China “A” Share – Possible inclusion as Secondary Emerging
• Colombia – Possible demotion from Secondary Emerging to Frontier
• Ghana – Possible inclusion as Frontier
• Greece – Possible demotion from Developed to Advanced Emerging
• Kazakhstan – Possible inclusion as Frontier
• Kuwait – Possible inclusion as Secondary Emerging
• Taiwan – Possible promotion to Developed from Advanced Emerging
• Thailand – Possible promotion to Advanced Emerging from Secondary Emerging
Now, there’s actually nothing new in terms of Greece being on this list.
The FTSE first put the Athens Stock Exchange on it in 2006, basically on concerns that the exchange needs to be more efficient in terms of stock lending, settlement, derivatives and so on.
However, the stakes of demotion would be much higher for Greece now.
After all — and as Dow Jones notes – it’s a big difference for index funds whether a foreign index they track is ‘developed’ or ‘emerging’, which is perturbing when you consider that foreign investment accounts for about 44 per cent of turnover on the Athens exchange.
Investment which Greece can’t really afford to lose right at the moment:
Related links:
FTSE country classification matrix – FTSE
Katabasis – Wikipedia
Greek government bonds go back to the EM indices – FT Alphaville