Reclassifications to shift frontier index

Reclassifications to shift frontier index

The MSCI Frontier Markets Index will have a higher exposure to Africa, Asia and Latin America as a result of the forthcoming reclassification of Qatar and the United Arab Emirates (UAE), according to Baring Asset Management.

MSCI will upgrade the two markets from frontier to emerging market status on June 2.

Reallocating the current 36.3% weighting that UAE and Qatar share in the index, will also proportionately increase its exposure to other markets in the Middle East such as Kuwait and Oman.

“Africa is one of the regions where we see strong long-term investment potential,” said Michael Levy, investment manager for the Emea and frontier markets equities team at Baring. “One consequence of this change is that we expect to see increased attention directed at markets in the region.”

The MSCI Emerging Markets Index is unlikely to undergo immediate major change as a result of the reclassifications. The weighting for Qatar and the UAE combined will probably stand at just over 1% when they enter the index, according to Levy.

“At the margin, however, we may start to see more institutional investors entering markets as a consequence of the change, which should be positive for the longer-term development of the region,” added Levy.

The upgrades will help to reduce the overlap between frontier markets and the Mena region. Over time, both classifications will play a role in delivering long-term growth for portfolios as a result of their positive demographics and urbanisation, the increased discretionary spending that accompanies this, and rich endowments of natural resources, according to Levy.

These factors will “provide investment opportunities for companies as well as helping to finance the investment in infrastructure needed to support economic and population growth,” said Levy.

Read more about the impact of the MSCI upgrade on the wider Mena region here: