By The ETF Professor
Shares of the Global X FTSE Greece 20 ETF (GREK), the lone ETF devoted to the "G" in the infamous PIIGS acronym, are off by more than three percent following news released late last week that index provider Russell Investments has demoted Greece to emerging markets status.
Russell, one of the top providers of benchmark indexes for ETF sponsors, said Greece "has been on a path toward reclassification as an emerging market since 2010, having failed the operational and/or macro risk portions of our review over the past two years. During our 2013 global market risk reviews, when we again evaluated the two risk profiles, Greece failed both tests."
The comments were made in a research note posted on the firm's website.
News of Greece's slide to emerging market from developed is not surprising, as at least one other major index provider has the country on a list for possible demotion.
In June 2012, MSCI (MSCI) said: "[t]he MSCI Greece Index is structurally no longer in line with Developed Markets size requirements with only two index constituents. If these two remaining index constituents were to experience further decrease in size, MSCI may be forced to discontinue the calculation of the MSCI Greece Index."
To its credit, GREK has been able to ward off myriad bad headlines over the past year. From a possible loss of Greece's developed market status to speculation that Greece would leave the eurozone to news that its largest holding was leaving Athens for a London listing, GREK had managed to gain over 12 percent in the past year prior to the start of trading today.
Another potential problem for Greece, and by virtue GREK, is the size Greece would have in various emerging markets indexes should it be demoted. Even at its peak in 2007, the total market capitalization of the Greek equity market was just $273 billion.
The number is nowhere close to that today, and even if Greek equities regained peak market values, they would still trail major members of the Russell Emerging Markets Index.
The top five country weights in the index are China, South Korea, Brazil, Taiwan and India, according to Russell data.
To illustrate just how small of role Greece is likely to play in major emerging markets indexes -- that is, if other index providers follow Russell's lead -- the combined market value of Athens-listed firms at the end of last year was just over $26 billion, according to Russell. By comparison, the largest market capitalization found in the Russell Emerging Markets Index at the end of January was over $271 billion.
GREK, which debuted in December 2011, had over $28 million in assets under management as of March 1.
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