The Russell Investments group with $2.4 trillion in assets, has reclassified Greece from a developed to an emrging market. The country's debts and three bailouts with its 5th year in recession has led to the demotion."During our 2013 global market risk reviews, when we again evaluated the two risk profiles, Greece failed both tests," the note said.
The news comes as officials from the European Union and the International Monetary Fund return to Athens on Sunday to assess Greece's performance under a bailout plan as the government plays down the prospect of public sector job cuts.
The heads of the "troika" mission from the EU, IMF and the European Central Bank will meet finance minister Yannis Stournaras to review progress on privatisations, tax administration reforms, bank recapitalisation and steps to shrink the public sector.
In its sixth year of recession, Greece has agreed to shrink its public sector by 150,000 by 2015 to cut its wage bill, mainly through attrition: hiring one new person for every 10 who retire.
Russell recognised that relegating Greece to an emerging market would invite questions over why the fund had not also reclassified Portugal or Spain; two more eurozone countries with troubled economies.
"While both of those countries have had their share of problems, and although neither is immune from a potential change in market-risk status, we haven’t seen the same degree of decline as we’ve observed in Greece – nor the same rise in risk," the statement said.
Greece is the first country Russell has cut to emerging from developed market status.
Russell's global indexes methodology describes a three-year path towards a country's potential reclassification – by way of the company's developed, emerging or frontier market categorisation – as having become either more or less risky for investors.
The statement said: "Russell’s methodology requires developed markets to be, in general, the least risky and most efficient in which to trade.