MSCI Announces the Results of the 2013 Annual Market Classification Review
MSCI Inc., a leading provider of investment decision support tools worldwide, including indices, portfolio risk and performance analytics and corporate governance services, announced today its decision to reclassify the MSCI Qatar and MSCI UAE Indices from Frontier Markets to Emerging Markets, the MSCI Greece Index from Developed Markets to Emerging Markets and the MSCI Morocco Index from Emerging Markets to Frontier Markets.
The reclassifications of the MSCI Qatar and MSCI UAE Indices will coincide with the May 2014 Semi‐Annual Index Review.
MSCI also announced today the start of the review of China A‐shares for a potential inclusion in the MSCI Emerging Markets Index, driven primarily by a series of positive market opening measures and strong regulatory momentum over the past 12 months. The initiation of this consultation does not, in any way, indicate that the China A‐shares have already met the standards of Emerging Markets in terms of market accessibility criteria. In fact, a large number of key obstacles in the areas of capital mobility, quota allocation and taxation continue to exist and substantial progress would need to be made in order to warrant an inclusion in the MSCI Emerging Markets Index. However, given the significant size of the China A‐share market and the possibility of further regulatory reforms in the short term, MSCI believes that it is important to actively engage with the international investment community on this matter. The speed and magnitude of any hypothetical inclusion will be entirely dependent on the speed and magnitude of actual progress in the opening of the market and the resulting experience of international institutional investors.
Additionally, MSCI announced that the MSCI Korea and MSCI Taiwan Indices will remain under review for a potential reclassification to Developed Markets.
MSCI also announced that it is closely monitoring the situation in Egypt, in particular the negative developments in the foreign exchange market. MSCI may launch a public consultation on a potential exclusion of the MSCI Egypt Index from the MSCI Emerging Markets Index were the situation to worsen in the coming months.
Finally, MSCI also released today the 2013 Global Market Accessibility Review for the 79 markets under its coverage.
As a reminder, every June MSCI communicates its conclusions following discussions with the investment community on the list of countries under review and announces the new list of countries, if any, under review for potential market reclassification in the upcoming cycle. MSCI will communicate its decisions resulting from this Annual Market Classification Review in June 2014.
Reclassification to Emerging Markets
UAE: MSCI will reclassify the MSCI UAE Index to Emerging Markets as part of the May 2014 Semi‐Annual Index Review.
International institutional investors recognized the improvements made by the Emirati regulator (Security and Commodities Authority), the Dubai Financial Market and the Abu Dhabi Securities Exchange with respect to the DVP model. A proper false trade mechanism was introduced in May 2013 on both exchanges. A regulation governing stock borrowing and lending agreements has also been issued and the implementation is expected to be effective in the coming months. The majority of market participants have expressed no major concerns over the safekeeping of investors’ assets and are starting to move away from the dual account structure.
Qatar: MSCI will reclassify the MSCI Qatar Index to Emerging Markets as part of the May 2014 Semi‐Annual Index Review.
Market participants recognized that the Qatari authorities and the Qatar Exchange have made significant progress in enhancing the operational efficiency of the Delivery Versus Payment (“DVP”) model. Many international investors welcomed the introduction of a proper false trade mechanism that includes securities borrowing and lending facilities and expressed improved confidence in the safeguarding of investors’ assets. Consequently, a number of international institutional investors have also started to migrate from the current dual‐account structure to a single‐account structure.
MSCI welcomes the progress made to date and the further commitment of the Qatari authorities to increase the Foreign Ownership Limit (“FOL”) levels applied by Qatari companies. Several companies have requested the Qatar Exchange to modify the calculation method of their FOL to use the companies’ total market capitalization instead of the free float market capitalization, which will effectively increase the shares available to foreign investors. While the current level of foreign ownership is well below the limit, foreign ownership limits in Qatar remain low by Emerging Market standards and the Qatari authorities should actively continue to increase them above 25% in order to mitigate potential issues arising from increasing foreign capital inflows.
