By David Sol, Managing Director, Index Policy
Twice a year we announce the results of our Country Classification Reviews for fixed income and equity markets. Investors require an objective framework for evaluating and investing in either market, so our approach to country classification follows a comprehensive and transparent process, informed by feedback from a broad set of independent market participants and index users.
This time round it’s fair to say that the most significant developments in the latest announcement are in fixed income.
Saudi Arabian Government bonds will be included in the FTSE Emerging Markets Government Bond Index (EMGBI) after its market accessibility level was upgraded from “0” to “1”. Index inclusion of Saudi Arabian sukuk is also scheduled to start in April. We will continue to engage with the relevant Saudi Arabian market authorities regarding the levels of foreign holdings in Saudi Arabian government bonds and domestic market liquidity.
We have also retained India on our FTSE Fixed Income Watch List for an upgrade of its Market Accessibility Level to “1” – acknowledging the ongoing market structure reforms intended to enhance accessibility for foreign investors. Switzerland will also be placed on the Watch List for a potential upgrade to Market Accessibility Level of “2” and inclusion in the WGBI.
There have been other changes announced to our other flagship global government bond indices. The recently launched FTSE Frontier Emerging Markets Government Bond Index (FRNTEMGBI) will now see the addition of Kazakhstan’s government bonds to the universe of eligible markets. New Zealand will enter the FTSE World Inflation-Linked Securities Index (WorldILSI). Both inclusions take effect next April.
The FTSE Fixed Income Country Classification Announcement can be found here:
A summary of the relevance of each country classification level where it relates to global index eligibility is included below.
On the equity side of the process, Russia is retained on the FTSE Equity Watch List as a Secondary Emerging market. It will be reviewed for possible reclassification to an Advanced Emerging market within the FTSE Equity Country Classification scheme at the next Interim Review in March. We added Russia to the Watch List a year ago, when we specified that we would look for evidence of improvements to the registration process for new accounts.
Vietnam retains its place on the FTSE Equity Watch List as a Frontier market and will be reviewed for possible reclassification as a Secondary Emerging market at the March’s Interim Review. Vietnam enhanced its legislative framework but it has yet to demonstrate reforms to its post trade settlement cycle. Improvements are also sought regarding the registration of new accounts for international investors.
Iceland is being added to the FTSE Equity Watch List for possible reclassification to Secondary Emerging from its current classification as a Frontier market, while Mongolia – currently unclassified - is to be added to the FTSE Equity Watch List for possible reclassification to a Frontier market.
The FTSE Equity Country Classification Announcement can be found here.
In a challenging year, we are pleased the process has remained robust and transparent and we are pleased to see Saudi Arabia and Kazakhstan receive fixed income country classification promotions. We are also encouraged by India’s progress towards inclusion in mainstream local currency emerging markets indices such as the FTSE EMGBI. Overall we are seeing a wider range of participants World, Emerging, Frontier, and World Inflation-Linked Securities Index, which is good news for investors, lenders, and market participants.
Our country classification process is built on dialogue and transparency, so we will continue to engage with relevant authorities in India, Vietnam and Russia, and will provide an update to the market in March 2022.
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