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FTSE Group, the global index provider, announced today the result of its annual review of the classification of countries into developed and emerging market categories. FTSE classifies countries into three categories; Developed, Advanced Emerging and Secondary Emerging, within its FTSE Global Equity Index Series (GEIS), which is used by institutional investors worldwide. A Watch List of countries under review for promotion or demotion within these categories is also published annually by FTSE.
FTSE, helped by an expert committee of market practitioners, reviews quality of market criteria for all stock markets included in FTSE GEIS to assess the ease, cost and security of underlying investment transactions by international investors in all countries. During the past year, international investors and stock markets on the Watch List have engaged with FTSE in reviewing the progress made and the FTSE Policy Group has approved that the following country classification changes be made:- Israel will be promoted to Developed status from June 2008. Israel meets all quality of markets criteria for a Developed market and has done so since being included on the Watch List in 2006. A new FTSE Index for Developed markets in Europe, Middle East and Africa will be introduced for those investors wishing to integrate Israel within their existing Developed Europe portfolios;
- Hungary and Poland will be promoted to Advanced Emerging status from Secondary Emerging from June 2008. Both countries now meet the quality of markets criteria for Developed markets but will continue to be classified as Advanced Emerging until their World Bank GNI Per Capita Rating classification is upgraded to High; and
- Pakistan will be removed from the FTSE Global Equity Index Series in June 2008 as the stock market fails to meet the minimum entry requirements for quality of markets criteria. A separate country index for Pakistan will be maintained by FTSE for those international investors wishing to continue to invest in Pakistan.
- Delivery free of payment allowed for transferring securities between accounts;
- Off-exchange transactions freely allowed;
- Omnibus custody account facilities available to international investors;
- Short sales restrictions; and
- Liquid stock lending market.
The Athens Exchange and Greek Capital Markets Commission are both committed to work with FTSE and together the three organisations have set up a working party under the direction of the Chairmen of the Exchange and Capital Markets Commission and the Chief Executive of FTSE to agree and implement viable solutions to the above issues in the first half of 2008, some of which are addressed by the MIFID Directive. The success of this initiative will be assessed by FTSE’s expert committee at the next annual review of country classifications in September 2008 when a final decision will be made to classify Greece as either a Developed or Advanced Emerging market for 2009 and beyond.
The FTSE Policy Group also approved that the following countries remain included on the Watch List for 2008:- South Korea will continue to be assessed for promotion from Advanced Emerging to Developed status. Significant changes have been made to regulations and investment procedures in South Korea to assist international investors. In addition, an improvement plan has been published to remove restrictions on the free delivery of securities between accounts and to ease off-exchange transactions. Once these improvements are implemented, the only outstanding quality of markets criterion for Developed markets not then being met would be the removal of restrictions in the foreign exchange market.
- Taiwan will continue to be assessed for promotion from Advanced Emerging to Developed status. Whilst FTSE and investors are pleased to recognise that the exchange and regulator have made significant improvements, market access remains restricted to international investors in four critical areas:
- Free and well developed foreign exchange market;
- Liquid stock lending market;
- Delivery free of payment allowed for transferring securities between accounts; and
- Off-exchange transactions freely allowed.
- China ‘A’ share will remain on the Watch List for possible inclusion in the FTSE Global Equity Index Series. A substantial increase in QFII investment and the removal of foreign investment restrictions are required to meet the requirements to join the FTSE Global Equity Index Series.
Lindsay Tomlinson, Chairman of the Policy Group, commented: “The FTSE engagement process on country classification is of enormous value to the industry. It brings together asset managers, investment banks, exchanges and regulators to improve knowledge and understanding of the issues and barriers to trading efficiency across markets. The dialogue is facilitating major improvements in market practice with real benefits to all participants”.
Mark Makepeace, Chief Executive of FTSE, said: “Markets on the Watch List have made very significant changes to their regulations and investment procedures and systems to assist international investors to invest in their markets and are to be congratulated on the progress made. I hope that these markets will remain engaged in this process and that further markets that are close to achieving Developed status achieve this goal at the next annual review in September 2008”.
To allow investors to anticipate the impact of turnover, investment flows, and country weightings that the changes above will have on FTSE indices, a set of FTSE Watch List Indexes are available. The Watch List Series reflects current market conditions, but with changes to the markets outlined above already implemented.
For full details about FTSE’s country classification process and the current status of all countries in the FTSE Global Equity Index Series, please visit www.ftse.com/country . More information about the FTSE Watch List Series is available at www.ftse.com/watchlist.
