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Greece “re-emerged”

March 5, 2013

Published in New Europe Online

Greece reemergedRussel Indexes, the global stock market indexes house, proceeded in the last days of February to the “re-classification” of Greece as an emerging market. Russel had upgraded Greece to the develop market status yn 2001, when the country was joining the euro. However, the debt problem, a series of bailouts including a ‘haircut’ of government bonds, and the intervention of the ‘troika’ through an unprecedented austerity programme, increased significantly the overall risk of Greek investments, and led to this re-classification.

Several factors were considered by Russell to justify this decision. One is total market capitalization, which declined from around €180 billion in 2007 to approximately €20 billion today. Also, several large Greek companies, such as Hellenic Bottling Company, a major Coca Cola bottler, left Athens Stock Exchange, to re-incorporate in Switzerland or Luxembourg. The daily contraction of business and loss of large capitalization companies is larger by comparison to those of Portugal and other bailout countries.

Sharp reduction of market liquidity is also a important factor of risk, “In addition to Greece’s liquidity being significantly lower than that of the Russell Developed Index’s median country, we can see a decline in 2012 to more than half of the already-low levels of 2010. Greece’s current liquidity suggests a higher operational risk profile, more in line with emerging-market countries.”

Finally, since 2009, gross national income per capita decreased sharply in Greece; if IMF projections for a negative growth in 2013 hold, then we’ll watch a cumulative decline of around 30 percent in five years – a figure comparable to the decline of US income during the Great Depression.

All in all, Greece is still a place to invest, says Russell, although now it looks more like its Eastern-European neighbors: an emerging market, back to its pre-euro era classification.


From → Views & Opinions

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