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DUBAI - MSCI Inc, the world's largest index provider, said it will reclassify the MSCI Kuwait Indexes from frontier to emerging markets as the Kuwaiti equity market had met all the necessary requirements, a move expected to generate billions of dollars of inflows.
The index compiler will include the MSCI Kuwait index in the Emerging Market Index in one phase during the May 2020 semi-annual index review, it said in a statement late on Wednesday.
Sebastien Lieblich, Global Head of Index Solutions and Chairman of the MSCI equity index committee, said: "Kuwait's addition adds further diversification to the MSCI Emerging Markets Index with an estimated weight of 0.69%."
The upgrade follows Kuwait's implementation of regulatory and operational enhancements in the Kuwaiti equity market, such as introducing omnibus accounts that would allow foreign investors to trade while remaining anonymous, offering the same privileges that local investors now have.
Oil-rich Kuwait wants to strengthen its position as a regional financial centre and give the private sector a stronger role in the economy.
Inclusion in a benchmark index attracts inflows from "passive investors" who track those indexes. Dubai-based Arqaam Capital said in a note it estimates the inclusion will generate about $2.7 billion in net passive inflows.
Beyond that, the inclusion may also generate up to $7 billion in interest from active investors, according to the Kuwait and Middle East Financial Investment Company (KMEFIC), an asset management firm.
The Saudi stock exchange, the region's largest market, completed the second and final phase of joining the MSCI Emerging Markets Index earlier this year, garnering inflows worth billions of dollars.
"Using the comparison, Kuwait might experience a large performance boost in the first half of 2020 due to buy side pressure," said Abdullah Albusairi at KMEFIC.
The Kuwaiti benchmark premier index rose 30% this year, outperforming regional peers in anticipation of the MSCI upgrade. It was up 0.3% in early trade on Thursday.
(Reporting by Davide Barbuscia and Tuqa Khalid; Editing by Muralikumar Anantharaman and Jacqueline Wong) ((Tuqa.Khalid@thomsonreuters.com; +971521047568;))