Earlier this week, index provider MSCI (NYSE:
) announced its annual market reclassification and the news can
be broken down three ways. There was some surprise, though
arguably not much, and subsequent fallout for the relevant
Greece was demoted to emerging markets status
and it was revealed that Egypt could be bumped down to frontier
status in the future.
Then there was the not surprising/bland news that MSCI will
South Korea and Taiwan
as emerging markets. At least until next year's market
The good news is that Qatar and the United Arab Emirates, as
some suspected would happen
, were elevated to emerging markets from frontier status. That
means when MSCI conducts its semi-annual index review in May
2014, the countries will be included in the widely followed MSCI
Emerging Markets Index Fund.
What is important is that ETFs that track that index will not
suddenly become Qatar/UAE-heavy. In fact, MSCI
told Reuters on Wednesday
that Qatar will get a weight of 0.45 percent in the MSCI Emerging
Markets Index while UAE will receive an allocation of 0.4
percent. A reasonable theory is that there will be less than 15
stocks combined from the two countries when they first enter the
That situation means investors that are looking for access to
Qatar and UAE stocks via ETFs need to look elsewhere for
satisfactory weights starting with the...
WisdomTree Middle East Dividend Fund (NASDAQ:
) The WisdomTree Middle East Dividend Fund needs to be included
on this list not just because of its combined 66 percent weight
to UAE and Qatar, but also because the ETF has the right sector
mix. As is the case with many ETFs tracking developing world
economies, GULF is heavy on financial services stocks with that
sector occupying almost half the ETF's weight.
In this case, GULF's significant weight to bank stocks could
be a good thing. Remember all the consternation about Russian
deposits in Cyprus when the latter was on the brink of financial
ruin? Well, Russian cash is flowing into UAE. So is Chinese and
Indian capital as well. Citing an Invesco Study,
Trade Arabia reports
43 percent of private capital flowing into the UAE was from
emerging markets including 15 percent from India, 10 percent from
Russia, and 7 percent from China, while just 13 percent came from
PowerShares MENA Frontier Countries Portfolio (NASDAQ:
) The PowerShares MENA Frontier Countries Portfolio allocates 53
percent of its weight, combined, to UAE and Qatar and nearly
two-thirds of the ETF's weight goes to financial services stocks.
The almost 23 percent weight to Qatar is significant because the
country recently took action to
lift foreign ownership limits on its major
Increased foreign ownership limits in Qatar, now the lone OPEC
member with emerging markets status, are significant because
stocks listed on the Qatar Exchange have a combined market value
of just over $140 billion. Said another way, Apple's (NASDAQ:
) cash pile is roughly that of the combined market value of
listed Qatari firms.
As it pertains to PMNA, lifting of foreign ownership limits at
firms such as Qatar International Islamic Bank and Qatar Islamic
Bank, two of the ETF's holdings, could generate additional
interest in what is still a small ETF (just $15.6 million in
For more on ETFs, click
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