In March, Greece was demoted to an emerging from a developing market by asset manager Russell Investments, which saw the eurozone country as more risky.
MSCI said in a statement that Greece had failed to qualify as a developed market on several criteria such as securities borrowing and lending facilities, short selling and transferability.
"Market participants have commented that in‐kind transfer and off‐exchange transaction‐like facilities that were introduced in 2008 by the Greek authorities and the Athens Stock Exchange are so restrictive that they are, in practice, unusable," it said.
"In addition, the long-standing absence of well‐established stock lending as well as short-selling practices also make the Greek equity market incompatible with the standards of other developed equity markets."
Plus, in terms of size, the MSCI Greece Index has not met the developed market criterion for the last two years, MSCI said.
Morocco was also downgraded to frontier market from emerging market as it has failed the Emerging Market liquidity criteria for several years and "the downward trend in liquidity has shown no sign of reversal."
Qatar and the United Arab Emirates (UAE) were upgraded to emerging markets from frontier markets on progress made in "enhancing the operational efficiency of the Delivery Versus Payment (“DVP”) model."
The DVP system ensures that the delivery of securities occurs only if the payment is made.
MSCI has also initiated a review of China's A-shares – Chinese companies' stocks traded on stock exchanges such as the Shanghai Stock Exchange and the Shenzhen Stock Exchange and generally available mostly to residents in China – for inclusion in the MSCI Emerging Markets Index.
It said that there has been "a series of positive regulatory developments from the Chinese regulators to open up the mainland A‐share market," notably the rise of the total Qualified Foreign Institutional Investor (QFII) quota limit to $80 billion from $30 billion, the increase in the foreign ownership limit to 30% from 20% and the relaxation of entry requirements for QFII investors.
"As a result of these positive changes, the number of QFII investors has increased substantially from 135 as of the end of 2011 to 220 as of the end of April 2013. The total QFII quota awarded is now over $42 billion," the statement said.
However, "key obstacles" remain to the inclusion of China's A-share market in the MSCI Emerging Markets Index.
These are capital mobility, the lack of alignment between the size of individual QFII quotas and the size and investment processes of investors, and the lack of clarity on taxation rules, MSCI said.
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