Greece Downgraded To 'Emerging Market;' Will It Ever Emerge?
Charles Sizemore | Jun 18, 2013 01:27AM ET
Most of us would agree that Greece is not a “developed market” on par with the United States, Canada, or Western Europe. Its instability, pitiful economic governance, corruption and cronyism—all of which contributed to its spectacular sovereign debt crisis—prove that the country is not quite ready for the big leagues.
Morgan Stanley Capital International (“MSCI”), the provider of the indexes that comprise the popular iShares MSCI Emerging Markets (EEM) and iShares MSCI EAFE (EFA) ETFs, among many, many others, acknowledged as much last week. South Korea and Taiwan together make up a quarter of the ETF’s holdings .
Nothing against South Korea or Taiwan, of course. But both of these countries have living standards close to those of Europe. It’s hard to call these true “emerging” markets because they have already largely emerged. Samsung (SSNLF), the single largest holding in the fund, is arguably the world leader in smart phones, TVs and home appliances. Great company, but not what I would think of as an “emerging market stock.”
This brings us back to Greece. After the downgrade, will Greek stocks dominate the portfolio of EEM and other emerging market ETFs and funds?
Probably not. And even if they did, that might not be such a bad thing in the short-term. Greek stocks were one of the favored investments in InvestorPlace’ s Best Stocks of 2013 contest.
But my point remains: when you buy an ETF or mutual fund—emerging market or otherwise—you should spend that extra five minutes to visit the fund’s website and see what it owns.
Disclosure: Sizemore Capital has no positions in any security mentioned.
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