MSCI set to classify Kuwait as emerging market, subject to certain conditions

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Kuwait City Night View © arlomagicman /123RF Stock Photos Subject to certain conditions, MSCI is set to promote its Kuwait index to emerging market status beginning June 2020.

Later this fall, Kuwait’s financial markets are planning to open up to foreign institutional investors in new ways. If all proceeds as planned, the Kuwait index will be included in MSCI’s emerging markets index, which will add nine stocks to the index, for an overall pro forma weighting of 0.5 per cent.

Kuwait has been making significant progress of ensuring it meets the criteria for reclassification, says Pavlo Taranenko, executive director of index research at MSCI.

There remain, however, two caveats to the actual change in status for the country, he says. Earlier this month, Kuwait’s capital market authority announced it would make omnibus account structures, as well as same national investor number cross trading available for institutional investors by November 2019 at the latest.

“Omnibus account structures are a way for account brokers to group their clients together and that simplifies a lot of trading and management of clients,” he says. At present, these activities are restricted to locally licensed entities, suggesting it will not be especially difficult for the country to open up these structures to foreign firms, he adds.

Both of these points of progress will need to  occur before the reclassification can take place. The MSCI will announce its final decision by December 31, 2019.

“Of course, this is not something that’s in our hands, it’s in their hands,” notes Taranenko. “But they have publicly stated that they wish to do that.”

In another possible adjustment, MSCI said it’s opening up a consultation to potentially move the MSCI Iceland index from standalone to frontier market status.

“The market is quite small,” says Taranenko. Up until now, there simply haven’t been enough potential stocks to include Iceland in the emerging market category, which only requires three, he says.

“As of now, it has two companies that meet the criteria and actually they have a reasonable equity universe and a number of small caps, which is good.”

Accessibility also needs to improve in Iceland, he says. “You must be able to wire your money in and out without any frictions because at the end of the day when you manage a global portfolio, you have to manage your balancing and redemptions and so on. So, if your funds are potentially stuck in the market, or if you cannot convert from local currency to the U.S. dollar or Euro, that’s an issue.”

 

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