Greece gets a downgrade to developing nation

The wages of austerity?

 
Confrontations between police and protesters outside the Greek parliament during a general strike against austerity cuts. (Photo: Jess Hurd/Redux)
Confrontations between police and protesters outside the Greek parliament during a general strike against austerity cuts. (Photo: Jess Hurd/Redux)

Of all the adjectives that can be fairly applied to Greece and its debt-wracked economy, “emerging” probably doesn’t come to mind. But your portfolio might disagree with you on that.

Equity index provider MSCI Inc. is reclassifying Greece from a developed economy to an emerging market. MSCI’s influence is global, with $7 trillion in funds benchmarked to its indexes, including the popular iShares MSCI Emerging Markets ETF, which will include Greek equities as of November.

So the slice of your portfolio that targets the world’s most promising economies could soon expose you, albeit marginally, to the cradle of western civilization and, more recently, epicentre of the eurozone crisis. Just five years ago, the UN Human Development Index ranked Greece 18th in the world. Since then, the Athens Stock Exchange benchmark has fallen 85% and unemployment has risen to 27%.

Still, a crisis can blind investors to great buying opportunities. The global fixation on an imagined “Grexit” from the eurozone punished Greek stocks excessively, says Dan Hallett, a director of HighView Financial Group. The bad news was fully priced in, and then some. On the ensuing rebound, the Greek exchange was one of the world’s best performers, posting a 35% rise last year. “Greece is a fascinating example of why you shouldn’t make investing decisions based solely on what’s happening right now in an economy,” Hallett says.

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