- Warns on the potential reclassification of the MSCI
Argentina Index
- Notes the deterioration in investability of the MSCI Turkey
Index
- Reclassifies the MSCI Iceland Index from Standalone to
Frontier Markets status
- Announces monitoring of accessibility of the Nigeria,
Lebanon and Bangladesh equity markets
MSCI Inc. (NYSE: MSCI), a leading provider of research-based
indexes and analytics, announced today the results of the MSCI 2020
Market Classification Review and warned that the MSCI Argentina
Index may be removed from the MSCI Emerging Markets Index if there
is further deterioration in market accessibility.
“While volatility increased dramatically due to the COVID19
pandemic, global equity markets remained accessible and continued
to function well, allowing issuers to raise capital and investors
to manage risk during the crisis,” said Dimitris Melas, Global Head
of Equity Research and Chairman of the MSCI Index Policy Committee.
However, Dr. Melas added, “In the last 12 months, two important
Emerging Markets, Argentina and Turkey, suffered substantial
deterioration in market accessibility that could lead to their
exclusion from the MSCI Emerging Markets Index.”
Potential exclusion of the MSCI Argentina Index from the MSCI
Emerging Markets Index
MSCI announced today that it will continue consulting with
market participants on the classification of the MSCI Argentina
Indexes, as international institutional investors continue to be
subject to stringent capital controls which were put in place in
September 2019, making it impossible for international investors to
access the domestic equity market.
“The MSCI Argentina Indexes remain replicable, as only foreign
listings are currently eligible for index inclusion, but the
imposition of the current capital controls is not in line with the
market accessibility criteria of the MSCI Emerging Markets
Indexes,” said Sebastien Lieblich, Global Head of Index Solutions
and Chairman of the MSCI Equity Index Committee. Mr. Lieblich
added, “The Argentinian authorities must realize that the prolonged
application of capital controls or the introduction of further
capital controls may force the reclassification of the MSCI
Argentina Indexes from Emerging Markets status to either Frontier
Markets or Standalone Markets status.”
MSCI will consult on the potential reclassification of the MSCI
Argentina Index as part of the MSCI 2021 Market Classification
Review. However, any event that results in further deterioration of
market accessibility will prompt MSCI to remove the MSCI Argentina
Indexes from Emerging Markets as soon as practicable.
Marked deterioration in investability of the MSCI Turkey
Index
Additionally, MSCI announced that it may launch a consultation
on a reclassification proposal for the MSCI Turkey Index to
Frontier Markets or Standalone Markets status if the already
deteriorating accessibility level of the Turkish equity market were
to worsen further. As highlighted in the MSCI 2020 Market
Accessibility Review released on June 17, 2020, the accessibility
level of the Turkish equity market has been adversely impacted by
the introduction of short selling and stock lending bans in October
2019 and February 2020, respectively. These bans severely restrict
the ability of institutional investors to express active investment
views and hedge portfolio risk.
MSCI Iceland Index reclassification to Frontier Markets
status
MSCI also announced today that it will reclassify the MSCI
Iceland Index from Standalone Markets to Frontier Markets status.
The capital controls, including the Special Reserve Ratio, were
removed on March 6, 2019. While certain reporting requirements for
fund repatriation remain in place, based on feedback from market
participants, this no longer materially impacts the accessibility
of the Icelandic equity market for international institutional
investors.
MSCI will include the MSCI Iceland Index in the MSCI Frontier
Markets Index in one step coinciding with the May 2021 Semi-Annual
Index Review. Based on the simulation using pro forma data as of
June 18, 2020, this would lead to the inclusion of two securities
in the MSCI Frontier Market Index (excluding Kuwait) with an
estimated index weight of 5.24%. The simulated list of constituents
for the MSCI Iceland Index in the MSCI Frontier Markets Index
(excluding Kuwait) has been made available at
https://www.msci.com/market-classification.
Accessibility issues in select Frontier Markets
Some market accessibility issues have been recently observed in
select Frontier Markets. The Nigerian equity market has been
impacted by the significant deterioration of liquidity in the
Nigerian FX market. Lebanon has been subject to capital controls
which were introduced in October 2019. The Bangladesh Securities
and Exchange Commission (BSEC) introduced a floor price (set at the
average of the closing price of the immediately preceding five
trading days) applicable to all securities listed on the Dhaka
Stock Exchange in March 2020, resulting in substantial drop in
trading liquidity.
While such accessibility issues may be viewed by market
participants as part of the inherent characteristics of Frontier
Markets, these developments have a negative impact on the
replicability of the indexes. Therefore, MSCI will continue
classifying these markets as Frontier Markets until further notice,
while applying a special treatment to potentially reduce the number
of changes in the related indexes and mitigate the index
replication concerns.
MSCI will not implement selected changes for any securities
classified in Nigeria, Lebanon or Bangladesh in the relevant MSCI
Country Indexes or in any derived indexes that contain these
markets. This special treatment will apply to any potential changes
that would be part of upcoming index reviews, as well as certain
corporate event implementations. This treatment has been in effect
for the MSCI Nigeria Indexes since May 13, 2020 and will be
applicable to the MSCI Lebanon Indexes and the MSCI Bangladesh
Indexes effective immediately.
MSCI welcomes feedback on the level of accessibility of equity
markets in Nigeria, Lebanon and Bangladesh and will continue to
monitor the situation. In the event of further deterioration of
market accessibility, MSCI may reclassify the MSCI Nigeria Indexes,
the MSCI Lebanon Indexes or the MSCI Bangladesh Indexes to
Standalone Markets status as soon as practicable. MSCI would
provide sufficient lead time prior to implementation and would
consult with market participants about the details and timing of
the reclassification.
The accessibility reports for Argentina, Iceland and Nigeria are
now reflected in the MSCI 2020 Global Market Accessibility Review
report available at https://www.msci.com/market-classification.
Reclassification of the MSCI Kuwait Index to Emerging Markets
Status
As a reminder, MSCI will implement the reclassification of the
MSCI Kuwait Indexes from Frontier Markets status to Emerging
Markets status in one step coinciding with the November 2020
Semi-Annual Index Review (SAIR).
-Ends-
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