MSCI to change reclassification path, put pressure on VN market

Morgan Stanley Capital International (MSCI) has suggested the weight of Kuwaiti shares in its frontier markets basket will be curbed gradually to avoid shocks for other markets in the basket.

 

On April 8, MSCI announced the Kuwaiti market would be upgraded to the emerging markets level from its frontier markets rank in November.

The change would be done once and all Kuwaiti shares would be removed from the frontier markets basket.

As of October 21, Kuwait shares accounted for 25.54 per cent of MSCI Frontier Markets 100 Index. The re-classification of Kuwaiti shares is forecast to boost the foreign capital that flows into other frontier markets, including Viet Nam.

In the latest suggestion, MSCI said the weight of Kuwaiti shares in the frontier markets group would be cut five-fold.

In November 2020, 20 per cent of Kuwaiti shares will be removed from the frontier markets basket. The figure will increase to 25 per cent in February 2021, 33 per cent in May 2021, 50 per cent in August 2021 and 100 per cent in November 2021.

The suggestion means it will take another year for other frontier markets, including Viet Nam, to fully enjoy the flock of foreign capital escaping from Kuwaiti shares.

MSCI said it will collect feedback from financial firms until October 30 and the result will be announced by November 9.

Calculations by MSCI showed if the suggestion is approved, the cap of Vietnamese shares in MSCI Frontier Markets 100 Index will increase to 15.76 per cent in November 2020.

In November 2021, it is projected that Vietnamese shares will account for 28.76 per cent of the frontier markets index when all Kuwaiti shares are moved to the emerging markets basket.

The second-largest frontier market will be Morocco, which is forecast to make a cap of 12.47 per cent in the basket.

The iShare MSCI Frontier 100 ETF is the only exchange-traded fund that uses the MSCI Frontier Markets 100 Index as its benchmark. As of October 21, the size of the fund was worth US$387 million with the total value of Vietnamese shares accounting for 12.47 per cent of the fund value.

According to MB Securities JSC, in the case of suggestion being approved, iShare MSCI Frontier 100 ETF will buy an additional amount of VND270 billion (US$11.6 million) worth of Vietnamese shares in November 2020. The total purchase is estimated at VND1.41 trillion when the reclassification ends in November 2021.

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