Greek stocks tumble on market downgrade

Shares drop 3% as data provider MSCI reclassifies Greece's markets as emerging-market. Turkish stocks rally, but unrest has hit the markets there hard.

By Charley Blaine Jun 12, 2013 5:26PM
© Tom Grill, PhotographerThis has not been a great time to invest in Aegean stocks -- that is, the stocks of Turkey and Greece.

Since mid-May, indexes tracking the stocks of both countries have dropped by around 25%, although for different reasons.

Greek shares are lower because it's in a depression that shows no signs of ebbing.

In fact, MSCI (MSCI), which provides investors with a host of analytical tools including stock indexes, cut its rating of the Greek stock market to emerging-market status from developed market. It is the first time MSCI has said it will reclassify a market from developed-nation status to emerging-market. In response, the benchmark Athen Index Compos index fell 29 points, or 3.2%, to 867.

One reason for the reclassification is the Greek stock market's 83% plunge since 2007, as Greece's economy has been crushed by the global financial crisis. To obtain bailout financing, the government has been forced to gut public spending, curtail many social services and raise taxes.

Late Tuesday, the government suspended operations of its state television-and-radio operations. About 2,500 employees will be asked to reapply for jobs in a smaller operation.

The Greek market has slumped just in the last month. The Greek stock index was up 26.7% for the year on May 22. It's given up all of those gains since then, and is down 4.5% for the year. The Global X FTSE Greece 20 (GREK) exchanged-traded fund was down 61 cents to $15.87 on Wednesday. It has seen a 23.9% gain for the year collapse to a 12.1% loss.

Turkey's markets have tanked in part because of civil unrest -- that began with protests over plans (backed by the Prime Minister Tayyip Erdogan) to chop down trees, to make room for a shopping and residential complex in Istanbul’s Taksim Square. 

The protests that began months ago have morphed into, as the Economist put it, "an outpouring of the long-stifled resentment felt by those -- nearly half of the electorate -- who did not vote for the moderately Islamist Justice and Development party in the election of June 2011."  Erdogan won a third term in the election.

Like Greece, Turkey's stock market was enjoying a bullish year. The Borsa Istanbul Stock Exchange National 100 Index was up 19% on the year on May 22. It's given up all those gains since. The index was up 2.5% to 76,880.63 on Wednesday.

Both markets have been pushed around by the efforts of Japan's government to reflate its economy by driving the value of its currency lower.

The efforts pushed the yen down as much as 12% against the dollar, enabling speculators to borrow cheaply in Japan to invest or speculate elsewhere.

But there's been a backlash against the Japanese campaign, and the yen has surged as much as 7% against the dollar since May 22.

Also complicating matters: fears about rising interest rates in the United States that stemmed from Federal Reserve minutes, released on May 22, that suggested U.S. rates might move higher before the end of the year.

The 10-year U.S. Treasury yield has risen from 1.6% in early May to 2.23% on Wednesday. 

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