Index provider MSCI has published plans for handling a Greek exit from the eurozone in both orderly and disorderly scenarios, in a further sign that investors view such an event as increasingly likely.
A Greek exit would not automatically exclude the country from MSCI's Developed Market index, said MSCI. But if the exit were disorderly, MSCI may decide to exclude Greece by reclassifying the Greek index to “standalone market” status, as it did with Malaysia in 1998 and Pakistan in 2008.
MSCI would make this decision if a Greek exit led to “sudden and extreme deterioration” in the accessibility of the equity market for international institutional investors. MSCI could take this step if there were a lack of timely communications from Greek authorities about a new currency, or if the authorities brought in capital or foreign exchange controls or closed the stock exchange for a prolonged period.
The classification would likely take one to four months to implement, based on MSCI's experience of Malaysia and Pakistan.
If the Greek exit was orderly, MSCI would manage the transition as it has managed indices of other countries that have introduced new currencies, for instance Turkey's introduction of the New Turkish Lira in 2005. MSCI would change the currency of the Greece index on the same date that the Athens stock exchange began quoting prices in the new currency.
MSCI would decide a date to exclude Greek securities from its indices of the European Monetary Union based on the transition plan of the Greek authorities.
The firm reduced Malaysia from emerging market to standalone market status in September 1998 after the country introduced restrictions on the repatriation of capital, reinstating the country in 2000. MSCI reduced Pakistan to standalone market status in 2008 after the authorities introduced a “floor” to prevent Pakistan-listed securities trading below certain levels, skewing prices and reducing the transparency of the stock market.
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