SOURCE: Russell Investments

Russell Investments

June 15, 2012 09:57 ET

The Future of Greece in the Eurozone

Russell Indexes Explains Its "Financial Crisis Rule" for Country Classification

SEATTLE, WA--(Marketwire - Jun 15, 2012) - Greece, which has been classified as a developed market within the Russell country classification system since 2001, has been a central part of the ongoing Eurozone crisis.

Should financial assistance and political solutions fail, putting Greece in a position to potentially exit the European Monetary Union, the Russell Indexes' "financial crisis rule," already included in the Russell Index methodology, is able to cover any extenuating circumstances.

"Russell recognizes that emergent circumstances can arise in a market during times outside of our annual country eligibility review, prompting an immediate change. For this reason, Russell maintains a financial crisis rule within our published methodology," said Russell Indexes senior research analyst Mat Lystra. "Now that we have passed our eligibility review, we would need to rely upon the financial crisis rule in the case of a significant market event. Should conditions become difficult for global investors our methodology allows us to respond to a market that is no longer viewed as being a part of the standard global equity opportunity set."

Russell Indexes has outlined a number of potential events that could influence Russell's decision to implement its financial crisis rule:

  • A return to the Greek drachma currency from the euro could result in a strict capital controls and a possible currency crisis.
  • Nationalization of substantial portions of the Greek economy affecting investor compensation for their ownership in nationalized companies.
  • Prolonged closure of the Athens Stock Exchange preventing price discovery, impacting liquidity and resulting in possible write-downs or write-offs of investments.
  • Elevated country risk as measured by the Economist Intelligence Unit resulting in Greek risk scores that fail "developed" market status.

A research note detailing the execution of the financial crisis rule by the Russell Indexes, authored by Mr. Lystra, is available on the Russell Indexes website.

Opinions expressed by Mr. Lystra reflect market performance and observations as of June 14, 2012 and are subject to change at anytime based on market or other conditions without notice. Please remember that past performance does not guarantee future performance.

The Russell Global Index includes more than 10,000 securities in 47 countries and covers 98% of the investable global market. All securities in the index are classified according to size, region, country and sector. Daily Returns for the main components are available here: