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Argentina and Saudi Arabia to join MSCI emerging markets index

ArgentinaArgentina is to be reclassified as an emerging market by index provider MSCI while Saudi Arabia will be added to the index for the first time, in a boost for foreign investment into both countries.

The announcement by MSCI, which is expected to be implemented in mid-2019, comes as Saudi Arabia mulls the listing of state-controlled energy giant Saudi Aramco – in a move expected to spawn the world’s largest publicly-traded company.

For Argentina, MSCI’s reclassification will reverse a downgrade to “frontier market” status made in 2009 after the Latin American country imposed capital controls.

Both countries are now expected to benefit from investment from some of the world’s largest fund managers as a result of the upgrades.

Bassel Khatoun, managing director at Franklin Templeton Emerging Markets Equity, said that MSCI’s decision will prove to be a “huge win” for Saudi Arabia’s country’s capital market.

“With $1.9 trillion (€1.6 trillion) of funds tracking MSCI’s emerging markets index, the 2.6% that Saudi will initially command is likely to result in equity flows of approximately $40 billion,” he says.

“The IPO of Saudi Aramco could also potentially add another $50 billion of inflows into the market.  Foreign investors’ portfolio holdings in the Tadawul currently account for a mere $9 billion, making the level of potential inflows into Saudi Arabia quite unprecedented.”

Tim Umberger, deputy head of eastern Europe and portfolio advisor at East Capital, the independent asset manager specialised in emerging and frontier markets, says that the decision to reclassify Argentina had come as a “positive surprise” given recent political, financial and market volatility.

“Given the size of the Argentinian economy and its equity market, and equally important, capital market reforms over the past 12 months in our view justifies this decision,” he said.

“Any positive news is welcomed these days and it could serve as a short term catalyst for a rebound after a steep fall.”

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