MSCI Inc. (NYSE: MSCI), a leading provider of investment
decision support tools worldwide, including indices, portfolio risk
and performance analytics and corporate governance services,
announced today that the MSCI Korea Index and the MSCI Taiwan Index
will be maintained in Emerging Market status and will remain under
review for potential reclassification to Developed Markets as part
of the 2012 Annual Market Classification Review. In addition, MSCI
also announced that the 2011 review period for the potential
reclassification of the MSCI Qatar Index and the MSCI UAE Index
from Frontier Market to Emerging Market status has been extended to
December 2011 in order to give additional time for market
participants to assess the impact of the recent positive changes
implemented in these two markets. This review period extension will
also provide more time to regulators and stock exchanges to address
the remaining concerns raised by international institutional
investors. MSCI also released today the 2011 Global Market
Accessibility Review for each of the 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. As part of the 2012 Annual Market Classification
Review there will be no new candidates added to the list of country
indices under review for potential market reclassification. MSCI
will communicate its decisions resulting from this Annual Market
Classification Review in June 2012.
Review of Markets in the Review List
1)
Potential Reclassification to Developed
Markets: MSCI will maintain the MSCI Korea Index and the MSCI
Taiwan Index in Emerging Markets. The MSCI Korea Index and the MSCI
Taiwan Index will remain under review for a potential
reclassification to Developed Markets as part of the 2012 Annual
Market Classification Review.
Accessibility issues in both markets, in particular the lack
of full currency convertibility, including the absence of active
offshore currency markets, and issues linked to the rigidity of the
ID systems, remain unchanged from the view of international
institutional investors. In Korea, MSCI notes that some
measures have been put in place in an attempt to alleviate
frictions and inefficiencies resulting from the lack of full
currency convertibility and the ID system. Examples are the
revision of the Banking Act to provide foreign investors additional
funding options for securities settlement purposes, the adjustment
of currency market settlement timing, the use of lead IRC accounts
for block trading and the endorsement of an in-kind transfer
principle. However, feedback from investors indicated that their
actual experience has seen limited improvement as administrative
constraints attached to these measures make them of limited
effectiveness in practice. In addition, anti-competitive practices
have not been eliminated: the provision of stock market data
continues to be subject to contractual anti-competitive clauses.
On a positive note for Taiwan, pre-funding practices, while
not completely eliminated, are now less severe following the
implementation of a T+2 DVP settlement cycle. 2)
Potential Reclassification to Emerging
Markets: MSCI will extend the review period for the potential
reclassification of the MSCI Qatar Index and the MSCI UAE Index
from Frontier Market to Emerging Market status and will announce
its decision in December 2011 in order to give additional time for
market participants to assess recent enhancements implemented on
the Qatari and Emirati markets. As a reminder MSCI requires a
period of assessment by market participants following major changes
in the operational framework. Given that the new delivery versus
payment (“DVP”) models were introduced only in May 2011, few market
participants have had the opportunity to make a full assessment
yet. This additional review period will also give more time to the
regulators and the stock exchanges to address the remaining
concerns raised by international institutional investors. A
potential reclassification of the MSCI Qatar Index and MSCI UAE
Index to Emerging Market status would be implemented in the MSCI
Indices at the earliest as part of the November 2012 Semi-Annual
Index Review.
International institutional investors welcomed the
introduction of new DVP models that have been implemented on the
Qatar Exchange, Dubai Financial Market and Abu Dhabi Securities
Exchange in May 2011. The Qatari and Emirati models are very
similar and both are expected to contribute to the elimination of
the need for international institutional investors to setup and
operate dual account structures. As a reminder, international
institutional investors often establish segregated custody and
trading accounts in order to mitigate the risk from local brokers
having unlimited access to the trading accounts. This dual account
structure results in significant operational burdens associated
with the need to transfer shares from one account to the other
prior to trading. The effectiveness of these new DVP models to
guarantee the safeguarding of the investors’ assets and to allow
for the elimination of the dual account structure requirement still
needs to be fully assessed by international institutional
investors. Early feedback from market participants highlights as
one area of concern warranting further monitoring the handling of
failed trades, which could prevent them from adopting the single
account structure. International investors continue also to
be concerned by the effect of stringent foreign ownership limits
such as limited availability of shares to foreign investors. This
point has been more strongly voiced for the Qatari market as large
companies, such as Industries Qatar, have almost reached their
foreign ownership limit and became quasi- uninvestable for foreign
investors. Under current conditions the MSCI Qatar Index would not
qualify for Emerging Markets on this criterion.
The Egyptian equity market has returned to normal functioning
following a market closure of almost 40 consecutive business days.
MSCI may review the eligibility of a country index in an MSCI
Composite Index if the accessibility and investability of its
equity market are significantly impaired. No major issues have been
raised by international institutional investors with respect to the
operational framework of the Egyptian Stock Exchange following its
re-opening or on the market’s accessibility in general.
Consequently, MSCI is currently not reviewing the eligibility of
the MSCI Egypt Index in the MSCI Emerging Market Index.
MSCI would also like to clarify that the sovereign debt crisis
that impacted several European economies, such as Greece, Ireland
and Portugal, has had no impact on the accessibility and
investability of those equity markets. Hence, no changes are
currently being considered to the market classification status of
these MSCI Country Indices.
Finally, similar to the situation last year, the Pakistani
equity market continued to be characterized by a very limited
number of sizable securities and a reclassification of the MSCI
Pakistan Index to the Emerging Market status would result in
including only three index constituents meeting the MSCI Emerging
Markets minimum size requirements. Changing the status of an MSCI
country index should be viewed as an irreversible movement. Due to
the irreversibility requirement, MSCI will not include the MSCI
Pakistan Index in the review list for potential reclassification to
Emerging Markets as part of the 2012 Annual Market Classification
Review and will continue to monitor the development over next year.
MSCI welcomes feedback from market participants on this topic.
Global Market Accessibility Review
MSCI released today its second Global Market Accessibility
Review, including a year on year comparison, on all the 77 markets
it covers. The Global Market Accessibility Review aims to reflect
international investors’ experience in investing in a given market
and provides a detailed assessment of market accessibility for each
country market included in the MSCI Indices. In particular, it
provides an evaluation of 18 measures in four market accessibility
criteria, which are:
- Openness to foreign ownership
- Ease of capital inflows / outflows
- Efficiency of the operational
framework
- Stability of the institutional
framework
These four criteria are reflective of the views of international
institutional investors, who generally put a strong emphasis on
equal treatment of investors, free flow of capital, cost of
investment and country specific risk.
The assessment is intended to serve as the basis for a
comparison of countries’ market accessibility levels across
investment universes. This review aims also to serve as a tool for
international institutional investors to better track the evolution
of market accessibility in individual countries as well as for
regulators to be informed of the areas perceived as not meeting
international investor expectations. MSCI welcomes continuous
feedback from the investment community on the Global Market
Accessibility Review.
The complete results of the 2011 Global Market Accessibility
Review, including the detailed assessment of the different market
accessibility measures by country, as well as additional
information on the MSCI Market Classification Framework and a
summary of recent market reclassifications, can be found on MSCI’s
web site at www.msci.com.
After posting the review announcement, MSCI will hold two press
conference calls to answer questions from the media. Note that
these press conference calls are restricted to journalists.
First Conference
Call
Date: Tuesday, June 21, 2011
Time: 5.45pm EDT/10.45pm BST/11.45pm CEST International
Dial-In: +1-210-795-1098 Pass Code: MSCI MARKET CLASSIFICATION
REVIEW 2011 Toll Free Numbers: US: 866-803-2143 Hong Kong:
800-900-592 UK: 0800-279-3953 Japan: 00531-12-1857
Second Conference
Call
Date: Wednesday, June 22, 2011 Time: 9.00am BST/10.00am
CEST/12.00pm GST/4.00pm HKT International Dial-In:
+1-210-795-1098 Pass Code: MSCI MARKET CLASSIFICATION REVIEW 2011
Toll Free Numbers: US: 866-803-2143 Hong Kong: 800-900-592 UK:
0800-279-3953 Japan: 00531-12-1857
Clients and other interested parties should contact MSCI Global
Client Service with any enquiries.
About MSCI
MSCI Inc. is a leading provider of investment decision support
tools to investors globally, including asset managers, banks, hedge
funds and pension funds. MSCI products and services include
indices, portfolio risk and performance analytics, and governance
tools.
The company’s flagship product offerings are: the MSCI indices
which include over 148,000 daily indices covering more than 70
countries; Barra portfolio risk and performance analytics covering
global equity and fixed income markets; RiskMetrics market and
credit risk analytics; ISS governance research and outsourced proxy
voting and reporting services; FEA valuation models and risk
management software for the energy and commodities markets; and
CFRA forensic accounting risk research, legal/regulatory risk
assessment, and due-diligence. MSCI is headquartered in New York,
with research and commercial offices around the world.
For further information on MSCI, please visit our web site
at www.msci.com
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