Index provider MSCI’s long awaited upgrade of Kuwait indices from frontier to emerging market (EM) status is set to commence on November 30, signalling a potential rush of inflows.
However, the usual market rallies that precede an upgrade have been absent from Kuwait’s stock market which has remained somewhat muted over the year so far due to Covid-19 restrictions, global economic uncertainty and a slump in oil prices.
MSCI confirmed earlier this month that seven Kuwait stocks will be added to its main EM index at an aggregate weight of 0.58%. The reclassification was originally due in June but was postponed due to operational difficulties and market volatility sparked by the Covid-19 pandemic.
Previous index inclusions in the likes of Saudi Arabia and Qatar have produced significant inflow increases and it is still expected that a similar boost will occur in Kuwait.
According to Christopher Mellor, head of EMEA ETF equity and commodity product management at Invesco, Kuwait’s weighting in MSCI EM is expected to be around 0.7% post inclusion and could see inflows of up to US$14 billion if all assets tracking or benchmarked to the MSCI EM index match this weighting.
However, Mellor added: “The recent period of market volatility has affected not just the inclusion timing but also market performance and it looks like there is scope for improved returns in Kuwait equities.
“Unusually for an inclusion event, since the inclusion announcement in June 2019 Kuwait has underperformed the frontier market index and the emerging market index by 4.0% and 14.7% respectively.”
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