Executive Summary
This year, the semi-annual review of MSCI FM was marked by a major event. It concerns the exit of Kuwait, an important country which weighed up to 37% within this index. After Qatar, the United Arab Emirates and Argentina, Kuwait joins the emerging countries club by integrating the MSCI EM index.
Based on interviews with international fund managers and taking into account historical data relating to MSCI indices’ periodic reviews, we come out with the following conclusions:
- The Kuwait upgrade allows Morocco to become the second largest country within MSCI FM with a weight of 13.4% just behind Vietnam (29.9%). We believe that with this weight, Morocco will not be ignored by the active foreign fund managers, beyond those who adopt a passive(1) index approach;
- The exit of Kuwait did not benefit all of the countries of the MSCI FM index. Thus, the weights of Nigeria, Bangladesh and Lebanon were frozen, which constitutes a negative signal for foreign investors. This decision is explained by the liquidity and exchange rate issues affecting these three markets;
- The increase in Morocco's weight within the MSCI FM would generate, by the end of November 2020, a lower than expected liquidity flow from passive(1) foreign fund managers. According to our estimates, this liquidity flow would not exceed $ 20 Mn to be broken-down mainly between Maroc Telecom, Attijariwafa bank and LafargeHolcim Maroc;
- After the exit of major countries such as Argentina and more recently Kuwait, MSCI FM seems to be losing its attractiveness with passive(1) fund managers. We believe that foreign investors prefer to approach MSCI FM area with an active approach which is based on a stock-picking approach.
Read more
