Global Perspective: Inclusion in global indices often results in a greater flow of funds to capital markets, but it is just one aspect of the economic picture

The period of easily raising funds from abroad seems to be coming to an end for emerging markets around the world. In the new environment of higher interest rates in the US and increased competition for capital flows, portfolio managers are becoming more selective with where they place their money.

One way for developing nations to ensure that their financial markets can continue to attract foreign funds and remain sustainably liquid is by being included in visible and well-regarded benchmark indices. In addition to drawing in fund managers, inclusion on such indices requires specific standards that indicate to investors that the participating countries apply certain regulations and best practices.

Recent Upgrades

For two countries, 2018 is proving to be a pivotal year in how they are viewed by the global financial community. On June 20 stock market index provider MSCI granted Argentina and Saudi Arabia emerging market status – upgrading Argentina from a frontier market and including Saudi Arabia in its indices for the first time. Speculation during the lead-up to the MSCI announcement resulted in a large amount of research by banks and brokerages, countless financial press articles and comments from Luis Caputa, the previous minister of finance of Argentina. Confidence in both countries’ capital markets proved to be well placed with the mid-year move.

Prior to this, FTSE Russell, another global index provider, gave Saudi Arabia a boost by upgrading it from frontier to emerging market status on March 28. The announcement significantly increased the probability of MSCI doing the same, Fahad Al Turki, chief economist and head of research at Riyadh-based Jadwa Investment, told OBG.

Read the full Global Perspective in The Report: Kenya 2018