MSCI Inc has postponed the upgrading of MSCI Kuwait Indexes to emerging market status until November this year instead of next month due to the impacts of the COVID-19 pandemic, upsetting Vietnamese investors.
|MSCI has announced that the reclassification of MSCI Kuwait indexes to Emerging Markets level from the current frontier market classification would be delayed until the November. — Photo thuonggiaonline.vn|
According to the world’s largest index provider MSCI’s announcement last week, the reclassification of MSCI Kuwait indexes to Emerging Markets level, from the current frontier market classification, would be delayed until the November Semi-Annual Index Review, which was initially expected to take place next month.
This was because the COVID-19 pandemic is affecting the ability of international institutional investors to fully perform the preparation work required ahead of the implementation.
“Although Kuwait meets all the necessary criteria for a classification in Emerging Markets, COVID-19 pandemic’s impacts on the global economy and stock market may result in significant operational challenges around the required preparation to implement the index reclassification,” said said Le Hoang Phuong, an expert at Bảo Việt Securities Joint Stock Company.
According to MSCI, market participants have recently highlighted that they were experiencing difficulties as a result of COVID-19 measures in the process of opening accounts required to trade Kuwaiti stocks.
Therefore, in order to ensure the reclassification process without causing disturbance in the stock market and investors’ fairness, MSCI has decided to extend the lead time ahead of the implementation of the reclassification, MSCI said.
According to investors, the delay is disappointing news for Vietnam because if Kuwait gets an official upgrade to emerging market status, Vietnam may still benefit from a larger inflow of foreign capital that targets frontier markets.
As Kuwait moves to emerging market status, Vietnam’s weights could be increased in the MSCI Frontier Market Index and MSCI Frontier Market 100 Index to 25.8 per cent and 30 per cent, respectively, said Việt Dragon Securities Company (VDSC).
As of December 10, 2019, Vietnam’s weights in the two indices were about 16 per cent and 13 per cent, MSCI data showed.
“The impacts of the delay will be unfavourable for Vietnam but not significant,” said According to Bảo Việt Securities Co (BVSC).
“Both emerging and frontier markets and Vietnam's stock market are under foreign investors’ net selling pressure. Therefore, even if Kuwait gets upgraded next month and Vietnam's share in the MSCI Frontier Markets 100 Index and the MSCI Frontier Markets Index increased, foreign capital inflows into Vietnam's stock market would still remain minor,” BVSC said.
“Besides, out of 10 funds tracking and benchmarking MSCI Frontier Markets 100 Index and MSCI Frontier Markets Index, nine are active investment funds. Therefore, amidst rising global risks and the net selling trend in emerging and frontier markets, it is likely that active funds will not make adjustments even if the reclassification was not delayed,” BVSC said.
MSCI is the world’s leading provider of research-based indexes and analytics, whose emerging-market group of indexes has about US$1.8 trillion of assets tied to it. — VNS
The stock market in 2019 closed with a VN Index increase of 7 percent, an average achievement, though the macroeconomic indicators were very good and the State Bank loosened monetary policy.
Rong Viet Securities (VDSC) and Mirae Asset believe that MSCI may upgrade Vietnam’s stock market to an emerging market in 2022-2023, while BSC thinks the upgrade would be prior to 2025 at the earliest.