Twice a year, MSCI reviews its indexes, and the MSCI Emerging Markets Index – the underlying index for the iShares MSCI Emerging Markets Index (EEM) exchange traded fund (ETF) – is about to see more changes.

MSCI has announced they are upgrading Israel to developed markets status, upon recent market classification analysis. Five “bubble” countries have been watched closely, but for the time being, only Israel was promoted, reports Matther Hougan for Index Universe. Israel is 4% of the MSCI Emerging Markets Index.

The countries of Kuwait, Qatar and the United Arab Emirates are still waiting to go from frontier market status to emerging market level. MSCI is encouraged by the progress made in opening up these markets, while it said Kuwait still faces too many market accessibility issues to be considered.

South Korea is staying put as an emerging market for now, but will be back up for promotion in 2010. Israel’s promotion will take place during MSCI’s May 2010 semiannual index review.

Reclassifying South Korea would have a major effect on the MSCI Emerging Markets Index, as Korea is the third-largest country in the index by weight (12.4%). South Korea wasn’t classified as a developed market because its currency isn’t fully convertible and its stock market’s real-time data didn’t meet the requirement for the change, MSCI said. The South Korean market was not interested in the upgrade either, reports Tal Barak Harif for Bloomberg.

Israel has a stock market valued at $131 billion, and stock indexes that have around $3 trillion in assets. Israeli tech and chemical companies may have attracted the increased investment.

Emerging markets are economies in transition, moving from a closed to an open market while building accountability, says Investopedia. What defines a frontier market is open to interpretation. In general, though, they’re considered a subset of emerging markets. They’re investable, but have lower market cap and liquidity.

• iShares MSCI Israel Investable Market Index (EIS): up 33.6% year-to-date

• iShares MSCI South Korea Index (EWY): up 24.6% year-to-date

• iShares MSCI Emerging Markets (EEM): up 28.3% year-to-date

For more stories these markets, visit our category pages for  South Korea and Israel.

Tags: Asia, EEM, EIS, Emerging Markets, EWY, Frontier Markets, Global ETFs, Indexing, Israel, Middle East, South Korea