4th March 2013
Greece has been stripped of her developed market status and re-categorised as an emerging market by fund manager and index provider Russell.
Russell says that the change comes about as a result of its market risk review process which it says it driven by a “rules-based” objective analysis. It says the change will become effective in late June.
In a note issued today the firm says: “One important change at this year’s reconstitution is that country constituent Greece will be reclassified from a developed to an emerging market country. This conclusion by Russell Indexes results from a three-year market risk review process, as prescribed by Russell’s methodology, in which Greece did not meet macro- and operational risk criteria for developed market status, but did meet classification criteria for inclusion in emerging markets. Russell’s country classifications are announced each year in March and any changes become effective at the conclusion of its annual index reconstitution process in late June.”
The firm is obviously at pains to demonstrate the change comes about as a part of a clear and objective process rather than a subjective one.
Russell Indexes senior research analyst Mat Lystra says: “Our analysis of Greece and conclusion to reclassify its market status has been guided by the rules-based, objective and transparent methodology for Russell Global Indexes. Having a clear road map to follow and the global resources to carry out the level of ongoing analysis needed to evaluate Greece against the same risk and efficiency criteria among all countries in the Russell family of global indexes has been extremely helpful in this process.”
It adds: “While reclassifications are rare, they do occur if a country no longer meets the criteria for its current classification. It takes three years of sustained changes in economic criteria for a country to be reclassified, and reclassification can happen in different ways. A frontier or emerging market country can advance to emerging or developed status, while a developed or emerging market country can shift to emerging or frontier. Russell’s methodology requires developed markets, in general, to be the least risky and most efficient in which to trade, with emerging and frontier markets progressively more risky and less efficient along the spectrum.”