MSCI announced, as expected, that it will upgrade Greece from emerging to developed markets, with implementation delayed from the original target of August 2026 to May 2027. According to JP Morgan, this delay somewhat reduces "concern," but not substantially. "We are very dissatisfied that MSCI will promote Greece, as we expect a decrease in investment interest," they characteristically state.
Outflows are coming
According to the bank's calculations: Greece will enter the MSCI Europe with only 4 stocks, instead of the 8 it had in the EM index. The total weight will be 28 basis points, smaller than Portugal (34 bps), Austria (50 bps), and Ireland (66 bps). Net outflows are estimated at $604 million, despite inflows of $108 million from the 4 stocks moving to DM, against outflows of $712 million for the rest. JP Morgan explains why net outflows are expected. Moving from MSCI EM to DM triggers small inflows for the passing stocks, but large outflows for those left out of the main DM index. As they note, "Greece sees a small inflow only in the four stocks moving to DM (all banks), while the remaining four (non-banking) suffer from large outflows."
Investors are decreasing
The bank warns about the significance of this change. "The reduction from over 4% of MSCI EMEA EM to less than 30 bps of MSCI Europe / 5 bps of MSCI World is likely to reduce the number of investors monitoring the market. The shift from a country-centric EM investor base to a sectoral, pan-European base means a loss of focus for Greek stocks." Furthermore, only banks are likely to pass the DM criteria. "MSCI Greece will consist of banks only, with no non-financial stocks. Even if PPC passes, it will be the smallest utility company in the MSCI Europe index. National Bank will not be one of the top 50 European financial stocks."
What happened in 2001
JP Morgan recalls that when Greece was upgraded to DM in 2001, interest in the market plummeted, and estimates that something similar will happen now. Analysts also emphasize that joining Developed Markets does not guarantee increased interest: "We wonder if Greece will attract significantly more interest than Norway, Austria, or Ireland." Finally, the bank concludes that MSCI's targeting for inclusion in DM Europe "does not seem to maximize investor attention": with less than 40 bps in DM Europe and 5 bps in MSCI DM, Greece can easily be bypassed entirely by many investors.
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