Posted on November 11, 2014

In a statement reported by Reuters, MSCI announced that a Qatari listed company “Gulf International Services” will be added to the emerging market index. In its semiannual review announced last week, MSCI also increased the weights and removed the adjustment factor for 3 stocks in the UAE and 4 stocks in Qatar, citing relaxed foreign ownership restrictions.

In May, when MSCI upgraded the UAE and Qatar to emerging market status, it cut the weightings of a number of companies by a factor of 0.5 because of limits on foreign ownership. Now, however, in the review that will take effect at the end of November, MSCI has removed the adjustment factor for Qatar National Bank, Industries Qatar, Commercial Bank of Qatar and Doha Bank. According to the report published by Reuters, VTB Capital estimates that the adjustments will result in total net fund inflows of $1.9 billion into Qatar.

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MSCI is considered to be one of the leading providers of international equity indices, with about USD 3 trillion of funds benchmarked against its indexes globally and some USD 321.9 billion invested in exchange- traded funds linked to MSCI indexes. A recent Global Investment House report estimated that, two-thirds of fund managers across Europe use the MSCI Indices as their international index provider and that in absolute terms, around USD 1.5 trillion is benchmarked against the MSCI EMF index.

The anticipation is that upgrading a country‘s market status by MSCI could have beneficial consequences by attracting equity portfolio investment flows that migrate to emerging markets but not to frontier markets. Inclusion in the emerging market index implies that countries enter into an international investable space. For the majority of institutional investors investing in Frontier Markets is outside their mandate given that such investments are rated as below investment grade.