Yesterday was another day of turmoil for emerging markets and according to equity index provider MSCI, they have a new member.
For anyone who thought the euro zone’s debt crisis was over, MSCI lowered Greece to emerging market status last night. MSCI’s focus is the useability of the stock market – which it said fell short of developed market status – but its move casts a wider judgment on an economy still deep in recession, with unemployment at 27 percent and which will almost inevitably need a further debt writedown in the future.
An MSCI upgrade can attract a wider poll of investors who track its indices. The reverse is also true.
Greece’s failure this week to find buyers for its state-owned natural gas company – a key part of the privatisation drive which the EU and IMF demanded as part of its drive to cut debt under a second bailout programme – makes another debt restructuring all the more likely and this time it will be euro zone taxpayers footing the bill since it is their governments that are the creditors. That means there is no chance of it happening this year, with German elections looming, but further out…
There is no sign of calm returning to emerging markets, still spooked by Ben Bernanke’s warning that the Federal Reserve could soon begin to slow the pace at which it creates new money. Much of the $85 billion a month the Fed has magicked up has flooded into those markets offering a decent return and the fear is that if U.S. bond yields rise as one would expect, it will flood out again. The jitters have been exacerbated by the Bank of Japan’s decision this week not to take fresh steps to calm its markets.