MSCI Reclassification To Push Small Net Outflow From Greek Stocks, JPMorgan Says

What changed and when

MSCI upgraded Greek stocks to developed-market status in March, with the switch set to take effect in May. That moves Greek names out of emerging-market products and into developed-market benchmarks. Of the 10 Greek stocks currently in MSCI's emerging lineup, JPMorgan expects seven to shift into the developed indexes.

The expected passive flows

JPMorgan's team tallies about $5.1 billion of selling from vehicles tied to emerging-market gauges and around $4.8 billion of buying from developed-market trackers, which nets to an estimated $275 million out. As Gupta put it, "We estimate the overall net passive fund flow impact for Greece to be negative."

Market context and what it means for your portfolio

The reclassification was framed as a milestone in Greece's comeback from a debt crisis that once posed a key risk to the euro-area economy. Since the start of the decade, the Athens Stock Exchange General Index has produced a 246% total return, outpacing the Stoxx Europe 600's 94%. That works out to about a 20% annual pace, yet the Athens gauge still sits well below its 2007 peak even as many European peers set records this year.

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The index weight math

JPMorgan says the upgrade leaves Greece with a much smaller footprint in its new home. Gupta projects a 0.06% weight in the MSCI World Index, versus a current 0.61% in the MSCI EM Standard Index. The firm also expects Greece to represent 0.41% and 0.27% of MSCI's Europe and EAFE benchmarks, respectively. The bottom line: passive flows should skew slightly negative around the May cutover as EM funds trim and developed funds add, with totals capped by the smaller developed-market weights.

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