The addition of Kuwait to the MSCI Emerging Markets index should encourage investors to consider emerging markets through a Middle East and North Africa (MENA) perspective, says Franklin Templeton.
MSCI’s upgrade of the country, which was announced this week, was contingent on the introduction of several regulatory mechanisms affecting institutional investors before November.
Up to 18 Kuwaiti stocks would be included in the index, around 70 per cent of which will be banks.
This was the second Middle Eastern market to be added to the emerging markets index after Saudi Arabia, a former standalone market, was added earlier this year.
Bassel Khatoun, chief investment officer for MENA equities, and Salah Shamma, head of investment MENA equity, at Franklin Templeton said it expected about US$10 billion in investor flows following the move, divided between passive and active flows. This would be in comparison to US$1.9 billion to the country in the past 12 months.
The pair said they hoped this inclusion would encourage investors to consider the MENA region as well as Asia and Latin America when it came to emerging markets.
“Our view is that with Kuwait’s addition to the MSCI EM index, combined with MENA representation, will amount to approximately 5.2 per cent, putting this region firmly on the global investment map.
“We would also expect more active money managers begin to look at the MSCI EM index through a MENA lens, raising the possibility of a positive spillover impact for the region’s capital markets.
“The significant liquidity surge that typically accompanies emerging market promotion also means investors in Kuwait could find opportunities from a more institutionalised and liquid stockmarket.”
The MSCI Kuwait index has increased 102 per cent over the last three years to 26 June, according to FE Analytics, compared to returns of 50 per cent by the MSCI Emerging Markets index.